Accounting for 34.04%, the highest is in the BDBL
The agricultural loan sector has contributed immensely to the non-performing loan (NPL) baskets of three financial institutions (FIs); Bhutan Development Bank Limited (BDBL), National Credit Guarantee Scheme (NCGS) and National CSI Bank Limited. 67.54% of the NPL in the three are loans of the agriculture sector.
The NGSC has disbursed about Nu 230mn as agriculture loan to its clients. This accounts for about 9.5% of the Bank’s NPL. Similarly, the National CSI bank limited has disbursed about Nu 490mn as agriculture loan. It accounts for 24% of its current NPL. Meanwhile, BDBL has disbursed Nu 4.7bn as agriculture loan, which comprises of about 34.04% of its NPL.
As the world ventures forth in the pre-pandemic phase, the rural people in particular are hoping for the re-opening of the bank loans. However, the finance minister, Namgay Tshering said that before re-opening the loan facility, it is important for the people to know the current situation in the bank though it is problematic for both the people and the county.
“We should look at the solution in the long run rather than having a short term solution,” the minister said, adding that, currently the Royal Government and the Royal Monetary Authority (RMA) are working on this solution.
The minister said that it is important and high time to study and look for a solution that would benefit both the people and the banks. “If the Royal Government does not work and focus on this regard than we will not know whether these banks will sustain after 1 to 2 years,” the finance minister said.
However, the finance minister said that currently the RMA has approved the BDBL to provide bank loan in nine districts including the 11 different branches in the districts.
The finance minister shared that the government has requested the RMA to make the financial institutions follow up on how the loan is utilised, the purpose of the loan, amongst others, rather than just focusing on the collateral. Efforts are also being made to give proper literacy to the rural people regarding the agriculture loans.
Meanwhile, in March 2020, media reports said that BDBL has incurred more than half a billion ngultrums in losses between 2014 and 2018 and that it is faced with sustainability issues. The media quoted a Royal Audit Authority’s performance report.
According to it, BDBL had lost Nu 580.22mn during the audit period. The audit report released in March 2020 showed that BDBL sustained huge overall losses in 2016 and 2017. In 2017 the loss figures amounted to Nu 880mn.
The management of BDBL had then told auditors that it was due to migration from Ascend Banking system to Finacle core banking system in May 2017. A paper cited that the loss was incurred due to deterioration of NPL and the requirement of huge provision for impairment of loans and advances, the audit report stated.
According to a financial expert, loan monitoring by financial sectors is very important as it delivers actionable insights that boost portfolio performance and enhance operating leverage. The bank or company can also achieve resilience through risk mitigations. It will also improve livelihood of the borrowers.
“The bankers do understand that there are risks and opportunity in the credit facility. However, it is important for the bankers to have good monitoring practices inorder to achieve long-term growth and success,” the expert said.
In-addition the expert said that what the bankers can do is have a staffing strategy leading to the formation of staff that will solely focus between the bank managers, loan officers and their clients for the better utilization of the resources and to mitigate future risks.
In more practical and financial terms, loan monitoring refers to those activities lenders conduct to assess the risk of a particular loan, once the initial underwriting steps are completed and the loan is booked.
Economists have the saying that like a shiny new car that immediately loses 30% of its value after leaving the dealer’s lot, a new commercial loan can see its value to the bank decline precipitously immediately after the agreement is signed, based on risk factors like changing economic conditions, managerial missteps and collateral devaluation, the expert said. “Through continuous, dynamic monitoring, lenders can minimize this risk of loss,” he added.
Meanwhile, from a total loan portfolio of about 8,709, about 3,018 of the loans were provided as rural loan by the CSI bank limited. Similarly, from a total loan portfolio of about 21386, about 5858 of the loan were provided as an agriculture loan.
Sherab Dorji from Thimphu