Pvt Sector and Banks wrestle over Phase Four Monetary Measures as Govt tries to be a referee

The Royal Monetary Authority (RMA) recently announced the Phase Four Monetary Measures that offers loan deferments between one year to two years and eight types of loan restructuring depending on the risk category.

However, in a meeting between the government, Bhutan Chambers of Commerce and Industry (BCCI), heads of Financial Institutions and RMA representatives, the BCCI members got up to ask for more monetary concessions while the bankers said that RMA had already been very generous.

What also became clear from the meeting is that deferrals are not blanket ones unlike in the past, but the banks would evaluate each client separately for their ability to pay or not and for this RMA has given the banks around six months.

The BCCI President Tandy Wangchuk raised the issue that the Micro, Small and Medium Enterprises had been entirely left out of the latest Monetary Measures. He said these businesses which are like small shops, groceries, restaurants etc had been badly hit by the pandemic and they should be included in the measures.

He asked that group loans should be given for these businesses.

On the tourism front he said that hotels in central and eastern Bhutan may get lesser visitors due to the new tourism measures and so if the government can give them a soft loan to promote themselves to Indian tourists who have to pay the INR 1,200 per day.

He later also asked for support to promote Bhutanese handicrafts and textiles in foreign destinations like Kuwait.

The former Chairman of the Private Sector Task Force for COVID-19 under BCCI, Ugen Tsechup, said that he had a few issues to point out with the Monetary Measures Four (MM4) after discussions with his colleagues.

He said that the MM4 are very restrictive and will not achieved the objective intended to be achieved which is the revival of the economy.

He said the two years’ deferment is not enough especially for hotels and restaurants and so the overall deferment should be for five years, but beyond the two years it should left to the discretion of the FIs.

On the term extension of the loan to 30 years for hotels and restaurants he said that such a term extension should also be available to others sectors like real estate, industries etc and again the FIs should be left to decide.

The RMA said that the interest accrued during the deferment are not to be capitalized but be converted into a ‘Fixed Equated Installment Facility (FEIF)’ payable in equal installments for a period up to five years.

He asked for more time to pay this component back.

Ugen Tsechup said that the low and high risk classification of RMA also does not take into account that some low risk sectors like workshops and others have not been doing well in the south since the border was closed, workers could not come in and travel was restricted.

He said even the boulder business was held up for two months and now fuel prices are up.

He said the FIs are the best people to make the decisions with the clients as without them they will not survive and without the clients the FIs will not survive.

Ugen said that NPL loans have been declared as non eligible for restructuring but he requested if the NPL Committee can take a look at the NPL loans that can be restructured or saved.

Another issue that came up was the fact that even for term loans being extended to 30 years the EMI difference was very less and so if loan interest rates could be reduced.

Ugen Tsechup also raised the issue of the valuation of collateral assets. He said the banks have been doing an exercise, but currently the assets are valued even below the government PAVA rates.

He said the soft loan or bridging loan is not a part of the deferment but it should be as the money was taken by companies to pay employees and keep businesses running.

The Prime Minister taking note of some of the above points said that within normal norms they don’t have to meet, but these are extraordinary times. He asked the RMA and the FIs to let the government know what they can do.

He said that banks are not competing with themselves over interest rates and Bhutan is only small market where money is being lent to other Bhutanese. The PM also asked if it is necessary to have among the highest deposit rates and loan interest rates.

He informed the gathering that the 5-day quarantine for workers will be lifted very soon which it was on 4 July.

The PM asked the view of the Financial Institutions Association of Bhutan (FIAB) head and RICBL CEO Karma on the FIs views.

Here the FIAB head said that their assessment is that the RMA has been very generous with the MM4 measures. He said that on the soft loan or bridging loan the RMA had authorized the loan to be given from the Cash Reserve Ratio which was brought down from 10 to 7 percent which is why it is not a part of the deferment.

The FIAB head also said that they have to go by what the regulator which is the RMA says and the spread between the deposit rates and the loan rates.

The Lhaki Group Vice Chair Sonam Tobgay said that since many industries are still recovering they are not able to pay the demand charge for the power and so  they can be charged on the actual power used for six months and he also requested that if delayed power bills are not imposed fines for till three months. The PM said this can be looked into.

The President of the Construction Association of Bhutan Trashi Wangyel said that currently banks charge 2 to 3 percent as commission on bank guarantees for contractors and if this can be reduced. He said of the Nu 35 bn capital works if the BG is 30% then the bank commission would be Nu 250  million which is quite large.

He said once Contractors get some government works one major challenge is to raise working capital. Here he said if the Ministry of Finance can issue a letter to give payment then the banks can use it as a guarantee of payment and release money to the contractor against it and once the work is done then the payment is released directly to the bank.

He said the advantage would be better quality construction material, no danger of under invoicing, timely construction schedule and banks getting the money directly.

He also raised the issue of banks undervaluing collateral.

The FIAB head here said that on the collateral valuation it was decided that banks would take around 60 percent of the market value as there is no deep market and so it would be safer, but while some banks are implementing it others are still in the process.

The Independent Director of the BDBL Nima Wangdi raised a concern that agricultural loans have been put under low risk, but in rural areas some people have been quite affected and he said once the RMA gets tough on NPL loans then the banks too have to get tough and go after clients and this is where small farmers are affected quite a lot. He asked if there can be some flexibility here too.

The President of Bhutan Association of Entrepreneurs, Rikesh Gurung said one reason NPLs are going up is because entrepreneurs are not doing well due to lack of support and the last two years has been particularly tough on them.

He said around 40 Entrepreneurs who have graduated from the Startup Center in Changzamtog are not able to continue their business and have mainly kept their equipment and goods at home and the jobs of around 200 people employed by them are at risk.

He said around another 33 who are about to graduate are not doing well too.  He said entrepreneurs are not able to access working capital which is required for the first few years and even the loan schemes for them require both collateral and their own cash as equity.

He said the procurement rules and bureaucrats are not flexible and so they do not give any preference to local products.

Rikesh said that BAFRA has not been able to certify food and herbal products to be exported from Bhutan which means exporters cannot take advantage of Brand Bhutan.

He said the GoI spent Nu 70 mn for the Startup Center that can accommodate 33 units but if the government can allocate 4 to 5 acres of land in Namseling or even Khasadrapchu them they can build pre-fab structures for Nu 20 mn to accommodate around 56 units so that entrepreneurs can use that space at minimal rent.

The issue of double and triple taxation also came up including the issue of the interpretation of the Fiscal Incentives Act over some tax free items like packaging.

The Prime Minister said that issues would be looked into and he asked for another round of meeting to sort out issues.