Private sector hit hard with RMA’s credit crunch

In the aftermath of the Royal Monetary Authority’s (RMA) directive to stall all domestic loans, the majority of the businesses have been affected, and the ripples being felt by the construction industry and car dealers are the worst.

The INR crunch makes it even worse.

President of the Construction Association of Bhutan (CAB) and Proprietor of Singye Group, Ugen Tshechup Dorji said there will be huge impact on business across all sectors.  “The non-availability of credit for heavy earthmoving machineries, vehicles and working capital is proving to be a huge problem,” he said.

In addition, works are stalled for common people who are in the process of building homes owing to lack of funds. A civil servant said, “I have temporarily stalled construction works because of lack of funds and have no idea when I can resume building my house.”

Ugen Tshechup Dorji said the construction sector will suffer if contractors cannot import heavy machineries and vehicles. He also said that automobile business will be the worst-hit sector as imports have completely stopped for now.

The credit crunch and the INR shortage have both contributed towards the question of sustainability of car businesses. Companies are unable to fetch spare parts for vehicles without which automobile workshops cannot function. “This poses a huge problem because we have invested a lot on the automobile workshops,” said Ugen of  Zimdra Automobiles.

To exacerbate the situation, human resources like salesmen, marketing and other personnel are becoming unaffordable for huge companies. “Salesmen are there in the showrooms to sell cars, and with no cars to sell, they become overhead cost,” said Ugen. He said the company may be able to sustain and cope with overhead expenses for a month or two after which there would be no options left.

The credit crunch has a direct effect on companies venturing out into new businesses. Ugen Tshechup Dorji’s new project, a milk processing plant has been stalled due to non-availability of funds from commercial banks.

He said, “We needed extra financing; the shortage of funds and the prolonged delay will lead to question the viability of the project.”

On the other hand, companies who have taken loans in the past have trouble making their monthly payments to the banks.  Ugen said, “Without business, we will be defaulting on the loans we have taken already and the interest imposed by banks will keep piling up”.

The industrialists however are not affected by the credit crunch but are desperately in need of INR. Letho of Druk Satair Corporation Limited (DSCL) said they are encountering problems in   making payments to workers and for transportation. Letho has put up a proposal with the RMA to consider financing his company with at least INR 3mn a month, which is the net required amount. He said DSCL generates a minimum of INR 40mn in a month and the payments received from clients or customers are through the proper banking channel.  “If RMA considers the request, there will be consistent inflow of INR because the cost we incur is less than 7% of the total INR generated”, he said.

Letho said business operations may have to be stalled if the request is not accepted just because of the inability to make payments to workers.

Secretary General of the Bhutan Chamber of Commerce and Industry (BCCI), Phub Tshering said there is definitely an adverse effect on the private sectors but is hopeful that the measures adopted by the financial institutions and regulators are temporary.

DSCL