The two threats to banks

The two biggest loan portfolios in the banking sector are Housing loans followed by Service and Tourism Loans and they in the financial year 2021 to 2022 made up around 52 percent of the total loans.

The tourism loans which consists mainly of loans to hotels is already impacted due to the inability of the tourism industry to pick up well enough with relatively low numbers of tourists.

If tourism does not pick up going into next year then many hotels and tourism related businesses will be unable to pay their loans once the deferral comes to an end in June end 2024.

This will lead to Non Performing Loan rates shooting up and may even shake the financial stability of financial institutions.

If this was not bad enough the huge migration rush especially to Australia in recent times coupled with more supply of new buildings is leading to apartments going empty.

If this trend keeps up then building owners in Thimphu and even other towns will have a tough time repaying bank loans.

If this happens then it can be the perfect financial storm with 52 percent of the loans being impacted.

It is important for the government, RMA and banks to recognize this big danger building on the horizon.

In terms of the tourism loans Bhutan should contemplate various ways including attractive schemes to bring in much more tourists. Only this can save the hotels and tourism sector.

When it comes to houses the government agencies and banks should advise people to go easy on the housing boom until the market becomes more stable.

The last thing that Bhutan needs is a financial crisis of gigantic proportions by next year.

It is the need of the hour that the government and all relevant agencies should be working very hard to avoid this.

A financial contagion will be disastrous for Bhutan especially at this time when the economy is already quite weak. It will impact every Bhutanese and push us back by many years and further fuel the migration that is already happening.

It is also not healthy for the financial system to keep giving deferrals as it will not only postpone the problem but make it bigger.

The warning signs are clear and so we should not be like a deer caught in headlights by next year.

It didn’t take me long to go from financial stability to fearing homelessness.
Stephanie Land

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