The Bhutanese Leading the way.
The Royal Monetary Authority (RMA) approved the partial lifting of loan moratorium of Bhutan Development Bank Limited (BDBL) to selected branch offices like Wangduephodrang, Tsirang, Dorokha, Gasa, Trashigang, Gedu, Dagapela, Jomotshangkha, Lhuentse, Zhemgang, and Nganglam.
These selected branches will be providing limited credit services in critical areas with focus on important sector of Agriculture, Livestock, Forestry and Logging. This was done from 23rd March 2023.
The rest of the branches will be under credit moratorium (lending suspension) until the concerned branch offices do not meet the PCA frameworks imposed by RMA.
An official from BDBL, said the partial lifting was determined by the level of non-performing loans (NPL) target which was 7.5% as directed by the RMA and those branches with NPL lower than 7.5% as of December had their loan moratorium partially lifted.
With regards to providing limited credit services, the official shared that it was considered based on the level of credit risk and considering the mandate of the bank which is to serve the rural farmers and also the importance of agriculture sector for improvement of rural livelihood.
It’s been about a year since the moratorium was put in place, and rural livelihood has been impacted a lot, with some having to halt their production activities and plans.
The directives from the RMA, dated 10 May 2022, suspended all loans—including bank guarantees—for BDBL, Royal Insurance Corporation of Bhutan Limited (RICBL), and National Cottage and Small Industry Development Bank (NCSIDB) until further notice due to a high percentage of non-performing loans. The authorization of new loans for them was halted as of May 13, 2022.
The Finance Minister wrote two letters to the Central Bank in response to the moratorium, and the Opposition Party also issued a press release focusing on how it is impacting the lives of those in the rural areas.
According to RMA then, the three financial institutions had excessive and risky proliferation of NPLs. As the regulator and the supervisor of the banking system in the country, the Central Bank was required to undertake immediate remedial actions before the financial institutions plunged into deeper crises.
RMA also stated that excessive level of NPLs poses a threat to the Bhutanese economy, if left unchecked, as it has a detrimental effect on the banking system of the country.
Currently, the NPL rate is yet to be finalized and last October, the BDBL NPL rate was at 9.22%. The RMA’s mandate for the NPL is 7.5%.
