The Bhutanese Leading the way.
The Finance Minister Lekey Dorji said that the Ministry of Finance has been working closely with the Royal Monetary Authority (RMA) and Office of the Prime Minister on the deferment of loans.
He said the Macroeconomic Framework Coordination Committee (MFCC) and its technical committee which includes professionals from RMA, MoF and other economic sectors have conducted studies on deferment.
He said there are two main issues with deferment.
The first is that Financial Institutions are showing signs of cash flow disruptions and they may be exposed to liquidity risks constraining their capacity to create credit which will hurt them.
Secondly borrowers may find themselves over leveraged as interest amounts continue to accrue during the deferment period further risking their ability to pay back and going into NPL.
Lyonpo said loan deferments started in April 2020 through four monetary measures that gave a blanket deferment for 2 years and the final monetary measure gave it to only selected high risk sectors which ends in June 2024.
Of the 149,063 loan accounts with a total loan of Nu 215.871 billion, about 12,941 loan accounts amounting to Nu 56.534 billion in loans have been deferred.
This is about 8.7% of the loan accounts and 26.2% of the loan amounts deferred.
The minister said the deferment was a temporary solution and the experts at the IMF, ADB, World Bank and local economists advise against continuing deferment.
He said deferment is a monetary policy which is under the purview of RMA but given Bhutan’s unique economy fiscal and monetary policies must work together and so RMA and MoF worked closely on this.
Lyonpo said banks have notified customers who have loan deferral accounts to meet their account managers and plan how to go about after 30 June, 2024.
He said banks know their customers best and RMA and the government should not intervene unless genuinely required.
According to the MFCC study many of the loan portfolios that were deferred may not need further deferment beyond June 2024 and some sectors may need deferment until 31 December, 2024.
The MFCC suggest all deferments should end by December 2024 as deferment after that could dampen economic growth limiting credit growth on account of low cash flow for FIs and more accrued interest causing higher NPLs potentially putting the financial sector under systemic risk of failure.
Lyonpo said this does not mean there will be no deferment post June 2024 but that there will be no blanket deferral and MoF and RMA will let FIs to decide on loan deferments based on stringent assessment and even on the tenure of deferments as indicated by the findings of their assessments.
The FIs will come up with their own assessment criteria and instead of blanket deferral the Fs will be exploring other options like loan restructuring, rescheduling of loans, fixed equated installment facility, negotiated tenure of extensions, loan splitting or partial deferment and other innovative financing mechanisms.
He said ultimately the objective of the banks, central banks and the government is to save everyone involved and not destabilize our banks or bankrupt our businesses and destroy our economy.
