FIAB submits its recommendation on loan deferment to RMA
RMA thinking more on the lines of around six months’ deferment but no final decision yet
Thursday afternoon saw an important meeting on the issue of loan deferments organized by the Royal Monetary Authority (RMA) between the Financial Institution Association of Bhutan (FIAB) comprising of all Financial Institutions heads, and the Bhutan Chamber of Commerce and Industry (BCCI) Private Sector COVID-19 Task Force.
The Finance Secretary Nim Dorji was there representing the government.
At the meeting, the Private Sector COVID-19 Task Force representing the private sector and chaired by Ugen Tshechup requested the FIAB, RMA and the government to give a one-year loan deferment extension.
This was based on the reasoning that the COVID-19 situation would stay the same for another year based on the international situation and the fact that a vaccine would take at least nine months to 15 months to be developed.
The RMA Governor who was at the meeting said that the RMA and the government had been thinking more on the lines of a six-month loan deferment.
The Task Force also requested for five-year long-term soft loans with an interest rate below five percent to enable private businesses to pay their salary and rent and survive.
After the meeting the FIAB had one final meeting on Thursday evening before finalizing and submitting its recommendation to the RMA on late Thursday evening.
A banker on the condition of anonymity said that the FIAB meeting with the BCCI Taskforce had an impact on its recommendations.
Before the BCCI meeting the earlier discussion among the FIAB members was to give the loan deferment to only certain effected sectors like the tourism industry, hotels, tour operators restaurants etc.
The concern in the FIAB was that FIs they have been losing EMI deposits of Nu 1.5 bn a month coming to Nu 4.5 in the last three months.
A banker said the concern is that without these deposits or a part of them coming in, banks would face a liquidity issue and even coming up with money to lend out may become difficult.
However, in the meeting it was impressed upon the FIAB and others that based on the study by the Task Force there was no sector of the economy that was not affected and so the request was to give the deferment for all sectors with the understanding that those who can will pay the loans.
The FIAB in its final meeting decided that the FIs would extend the deferment to all sectors of the economy, but this time the difference is that it would ask for loan payments by those who can afford to make the payments based on how their business is doing.
The members of the FIAB are of the view that the deferment helps them as well as clients but they also want to avoid liquidity problems by ensuring those who can pay do pay.
The current deferment period ends by June end.
A banker said that while the deferment would be for all, the credit officers of the FIs would do due diligence like checking the cash flow and income of the business or company and then decide if the company is eligible for deferment. This he said would be encouraging a true banking and credit culture.
The FIAB head and RICBL CEO Karma said, “The FIs have given Nu 153 bn in loans and advances and we need to secure them. In order to protect the economy, we must also protect this money given by shareholders, depositors, policy holders and lenders to the FIs.”
The FIAB head while confirming the report had been submitted to the RMA declined to give the timeline which the FIAB had suggested in its final report.
Earlier the FIAB members had suggested a period of three months first to see how the situation evolves.
The FIAB proposal to RMA has suggestions to improve liquidity like lowering the current 20 percent Statutory Liquidity Ratio (SLR) that banks have to keep with the RMA.
The BCCI Task Force Chairman Ugen Tshechup said, “We are not trying to take advantage of the government or the FIAB, we are saying that the reality is that everybody is suffering. For example, of the 15 or so industries 3 or 4 may be doing well but that cannot be an example to say all industries are doing well.”
He said that with a semi lockdown still in place the construction sector for example is not able to get skilled people and that in turn hurts the hardware stores. He said restaurants are open but due to the fear psyche of the people they are not coming out to eat.
He said Drayangs and sport centers are closed, the boulder export business which supported so many people have come to a standstill and the whole economy is in a downturn and the suffering is across the board. He said in such a situation it will not be wise to give a sector specific loan deferral as everyone is hit.
The Task Force has based the above assumptions based on its meetings with various private sector associations and organizations where it has compiled a report on the impact on them and the solutions for their problems.
He said it is known that the tourism industry will take longer to recover but currently everybody is in the same boat.
The Task Force Chair, however, clarified that it is not asking for an interest waiver on loans though the tourism industry may take up this issue separately on its own.
The Chairman said that on loan deferrals it is good for the banks and the clients as the banks will anyhow not be able to recover that money as people do not have the capacity to pay and it will just add to the bank’s Non Performing Loans (NPL) and impact its profitability.
He said that, however, those who have the capacity to pay should pay as it makes no sense to prolong one’s debt obligations.
The Chairman said the soft loan would help the businesses to pay the salary of their staff and their rent which he said was the most common issue facing various businesses.
“A business which is suffering now can take this soft loan and continue paying the staff and keeping the business alive and when the times are better they can pay back this loan within five years,” said the Chair.
He said in this case at least the money is being paid back otherwise people would keep losing jobs and then apply for Kidu and government handouts. He said that both the RMA Governor and the Finance Secretary had a positive attitude to what the Task Force was discussing.
The Chair said that not many businesses had taken the three-month duration soft loans due to the short loan period of the loans.
He said that right now many businesses despite not having much business were keeping staff by paying them 60 to 70 percent of the salary but they would soon run out of this capacity.