BNBL and BoB’s position on Latest Moratorium Differ

In what is a second moratorium, the country’s Central Bank, the Royal Monetary Authority (RMA) of Bhutan has temporarily suspended loans on commercial housing and hotel construction. While Bhutan National Bank Limited (BNBL) says the moratorium will have impact on their banking business, the Bank of Bhutan (BoB) says it will not.  

Hem Kumar Acharya, the director of banking operations at BNBL, underlined the significant impact of the moratorium on loans for new housing and hotel construction on the bank’s lending activities.

He said that the housing sector is particularly vulnerable, with a substantial portion of loans allocated to housing loans. “This sector continues to hold the highest loan exposure,” the director said. 

Providing insights on the scale of the loan, the director said that of the total loan portfolio of approximately Nu 47bn, housing loans account for slightly over 30% accounting to around 5,000 portfolios of the total loan portfolio of 20,000. 

“The major chunk being in the housing sectors, it will definitely impact the profit of loan but we are hoping to increase loan portfolio in another sector,” the director said. 

However, he shared the concern of venturing into another sector and addressing the current economy of the country.  Additionally, the director said, “While attempting to preserve reserves, this decision has diverse effects on the overall economy.” 

For instance, he added that the halt in loan disbursement impedes the progress of other sectors, such as suppliers of construction materials like cement and transportation services. He said the loan moratorium also impacts individuals who wish to build their own houses, as they must now wait for the loan suspension to be lifted before commencing construction.

The director also said that the Central Bank has imposed a moratorium on loans for new housing and hotel construction due to the rising non-performing loans (NPLs) as one reason. However, the director said that the housing sector has low NPLs, less than 2%, and is not the main source of risk.   The bank currently has around 200 pending applicants for housing loans. 

Meanwhile, an official from Bank of Bhutan (BoB) said that the Bank has been cautious in providing housing loans since 2022 owing to the exposure in this sector. 

The official added that besides, the moratorium only applies to new constructions and hence, may not have a huge impact on the bank’s performance and profitability. 

The RMA has announced the temporary suspension of new housing and hotel construction loans from June 9, 2023, until December 31, 2023. The decision comes in response to concerns raised by the RMA and the Royal Government of Bhutan (RGoB) regarding the outflow of foreign currency and the high credit concentration and risks of non-performing loans (NPLs) in these sectors.

During the moratorium period, all pending applications for housing and hotel construction loans currently being appraised by financial institutions will be put on hold. Financial institutions will not be allowed to issue new loans for expansion projects in the housing and hotel construction sectors.

However, there are exceptions to the moratorium. Loans that were sanctioned or approved before the close of business on June 8, 2023, will not be affected, irrespective of whether the loan disbursement has taken place. Additionally, loans specifically intended for repairs and renovation purposes will remain unaffected.

At the end of the year, a review will be conducted to evaluate the effectiveness and necessity of the moratorium on housing and hotel construction loans.

The RMA’s decision aims to address concerns surrounding the outflow of foreign currency and the risks associated with credit concentration and NPLs in the housing and hotel construction sectors. It underscores the commitment of Bhutan’s financial authorities to maintain the stability of the financial system and promote sustainable economic growth.

Nidup Lhamo from Thimphu