Royal Monetary Authority

No loans for 6 months if you don’t pay loans within 90 days

The Royal Monetary Authority (RMA) in a recent notification to all Financial Institutions (FI) has laid down strict new guidelines for Non Performing Loans (NPL).

An NPL is a loan which has not been paid for 90 days or more.

As per the RMA order if anybody enters NPL then they will have to undergo a six month cooling period with no access to credit from any FIs. This is even after you repay the NPL.

The banks have already received this and are implementing it.

A banker the paper talked to said that the earlier rule was that if you had an NPL you cannot take loans from other banks until you clear it but now under the new role even on clearing it there is a six month cooling period.

The Bhutan Chambers of Commerce and Industry (BCCI) President Tandy Wangchuk said that this will impact around 90 percent of the businesses in Bhutan.

He said in the last two years of the pandemic except for some wholesale and retail outlets and a few others all other businesses had not done well and are recovering and many are not in a condition to pay.

He said there is already growing worry even among the big companies who have loans with the banks.

The only saving grace for them now is that many sectors like tourism etc have been given loan deferrals from 2 years to one year under the monetary measures phase 4.

Tandy said this will not only impact the private sector but also individual borrowers and civil servants who do not pay on time.

This move by the RMA is to improve the NPL situation in the country. It is also part its recent toughening up where it wants its regulations to be implemented strictly. This is why the RICBL, BDBL and the Cottage and Small Industry Bank were asked by RMA in May 2022 stop giving new loans until it improves its NPL.

Another issue being pointed out is that again under RMA guidelines banks have been asked to do stricter due diligence when people who have taken construction loans come for loan enhancements.

The BCCI President said many contractors are suffering and many construction projects are stuck.

The NPL in March 2022 was at 9.78% at 17.56 bn.

Meanwhile, the Prime Minister Dasho (Dr) Lotay Tshering explained that the six months cooling period is for the banks to study the nature of the client.

He said that Bhutan has one of the highest NPL rates in the world with many countries having it at around 1 to 2 % but some banks in Bhutan touching at 14 to 15%.

“When the NPL is this high it does not reflect well on the economy and the capital market system and shows the money is not flowing efficiently in the market. The government’s job is to make the sure the market system is very efficient,” said Lyonchhen.

He said the six month cooling period is like doing a close follow up on a patient after a major surgery to make sure he or she is alright.

At the same time the PM said that even of people are unhappy with this he cannot undermine the authority of the Central Bank.

As per the monetary measure phase 4 risk assessment, hotels and restaurants (both budget and tourist standard) and tourism are categorized as high risk and they are eligible for deferment of loan repayment for up to two years with option of partial repayment (50 percent instalment) up to 2 years.

For moderately risked sectors, like construction, entertainment, housing, manufacturing enterprises, personal loans etc., the deferment is up to 1 year with option of partial repayment of also 1 year.  For low risk sectors, like ICT, contracts, hydropower, renewable energy, agriculture, forestry, loan against fixed deposits, etc., extension of gestation period of two years may be applied depending on progress of the project.

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