FM says Experts Advise Against Continuing Loan Deferment

Banks and clients will have to prepare for post-deferment arrangements

Finance Ministry navigating loan deferment challenges through a proper assessment of the client by the financial institutions

With the loan deferment to end in June this year, various sectors have been requesting the government for some consideration including reduced interest rate and continuation of the deferral for another six months, amongst others.

However, the minister of finance, Lyonpo Lekey Dorji said that the Macroeconomic Framework Coordination Committee (MFCC) and its technical committee with professionals from the central bank and other economic sectors conducted studies on deferment.

On the deferment front, the minister shared that the banks have notified their customers who have loan deferral accounts to meet their account managers and plan how to go about after June 30 2024.

Further, banks and their customers will assess the situation and make an informed decision as to how to carry the account forward, according to the finance minister.

“Banks know their customers the best and Royal Monetary Authority (RMA) and the government should not intervene unless genuinely required,” the minister said.

“According to the MFCC study, many of the loan portfolios that were deferred may not need further deferment beyond June 2024, and some sectors may need deferment until December 31, 2024,” he added.

Some clients of the bank shares mixed feelings on the loan deferral decision to be looked by the financial institutions.

“Set an option to reduce the interest rate on construction loan, amongst others, and to come up with a clear loan processing criteria for the public,” said a Bank of Bhutan (BoB) client from Phuentsholing.

“Genuine loan deferment requirement was for those NPL groups who had turnover in millions,” a client said, adding that no blanket deferment by the present government is the best and the most appropriate decision.

“Loan deferment is not needed,” another client from Thimphu said. “In the name of deferment, later we have to pay interest due and penalties. Financial institutions rather lower the interest rate and stop charging interest for NPL loans where liquidation terms have been over,” the client added.

“Whatever the case is, but people will die paying huge interest rate in the name of deferment,” another opined. “Reduce interest rate where there is no need for loan deferment and the people can pay the loan on time if the interest rate is reduced.”

Meanwhile, an official from the Bhutan Chamber of Commerce and Industry (BCCI) said that the Chamber has been requesting the government to see through the perspective of both the clients and the banks since they both have to go and grow in consonance to the country’s economy.

The official said that without the clients, the banks will struggle and even the economy will be hampered if the private sectors of the country collapse as a consequence. “It is like a whirlwind,” he added.

The finance minister underlined that before moving forward with the deferment, it is important to understand the issues with the deferment and pointed out two main issues.

“First, financial institutions are showing signs of cash flow disruptions, and they may be exposed to liquidity risks constraining their capacity to create credits which will hurt them. Second, borrowers may find themselves over-leveraged as interest amounts continue to accrue during the deferment period further risking their ability to pay back and going into NPL,” the minister explained.

The minister further highlighted that deferment of loan is a monetary policy, and that monetary measures are under the purview of the central bank. “The central bank has been employed but since Bhutan has a unique economy, fiscal and monetary policies must work together. So, the central bank and finance ministry are working closely,” Lyonpo Lekey said.

By Sherab Dorji, Thimphu