The Bhutanese Leading the way.
Under the Monetary Measures Phase IV announced in June 2022 it was decided that while high risk sectors like tourism hotels and restaurants, airlines, tour operators, ticketing agents and travel agents will get a two-year loan deferral till June 2024 the other moderate and low risk sectors will get a deferral till June 2023 only.
With the month fast approaching there has been worry among the sectors that fall in this category.
However, the RMA board during its 200th board meeting discussed and provided special consideration for extension of the loan deferment (full or partial) for sectors under the low and moderate risk category till June 2024.
The sectors under the moderate risk category are Construction, Entertainment and recreational services, mining and quarrying, handicrafts and textiles, manufacturing, retail trade, housing (commercial), home loans, consumer loan, mortgage loan, transport, education loan.
The sectors under the low risk category are educational services, ICT, consultancy, health services, wood based products, renewable energy, hydro power, traditional medicines, wholesale trade, crop cultivation, livestock farming, agro-processing, forestry, loan against fixed deposits and all others.
The RMA board decided to give the extension considering that the impact of the pandemic may not have worn off, and so some of the borrowers may require support measures in the form of loan deferment after June 2023.
However, as stipulated in the Measures Phase IV certain loans are not eligible for deferment.
These are loans to government, financial institutions, staff incentive loans and credit cards, and fixed equated installment facility accounts which are for transfer of accumulated interest during the deferment period to be paid in equal installment for a period of up to five years.
Financial Institutions (FIs) can give full or partial deferments for the moderate and low risk sector only for loans that are performing.
There are more conditions.
Borrowers are required to submit a request for deferment to financial service providers in the Form prescribed by the FIs.
The FIs shall carry out detailed assessment of the borrowers requiring loan deferment based on the assessment criteria developed by FIs. The assessment criteria for loan deferment shall be approved by the respective boards by the end of May 2023 and a copy is to be submitted to RMA.
The assessment criteria for corporate borrowers must include information on latest audited financial statements and cash flow statement to see the performance of the company.
For individual borrowers the FIs shall review the impact of the pandemic on their employment and source of income.
In addition to this the Internal Audit of the FIs will carry out a review of the deferred loans to ensure that the loan deferments are carried out in compliance with the assessment criteria and these reports will be submitted to RMA on a quarterly basis.
FIs have to give data on loan deferment on a monthly basis to the RMA as a part of regulatory reporting.
Interest will continue to accrue during the deferment period and the borrowers will be given the option of either choosing to clear the interest at the end of the deferment period or capitalize the interest and extend the loan tenure by the deferred period.
The RMA will assess the implementation of the loan deferment during the onsite inspections to ensure that deferment has been provided in a fair, transparent and equitable manner as per the Board approved policy.
In the event of non-compliance, the Board has to take necessary action and fix accountability on the responsible persons and RMA shall impose penalties if FIs violate this directive.
Though the RMA letter on the issue was sent to Bank CEOs on 30th March 2023 this information has not been shared with the public, press or through a RMA notification online like with past monetary measures.
The relative secrecy and the strict screening out rules suggest that RMA only wants FIs to give deferment only to those who really need as opposed to the blanket approach the last few times.
However, a banker said that once deferment is given on the ground it will be difficult to give it to one and deny it to another as many will claim they are not doing well.
When it comes to loan deferment the first monetary measures which started from April 2020 gave a three-month loan deferment till June end 2020.
The second phase monetary measures from the end of June 2020 gave loan deferment till June 2021.
The third phase monetary measures pushed the deferment to June 2022 and the fourth phase monetary measures till June 2023 for low and moderate risk sectors and June 2024 for the high risk sectors.
The latest change pushes the low and moderate risk sectors deferment to June 2024 too, but with strict conditions.
