FM says Experts Advise Against Continuing Loan Deferment

FM says Experts Advise Against Continuing Loan Deferment

FIs exploring options instead of a blanket deferment

From the 149,063 loan accounts with Bhutan’s Financial institutions (FI) and a total loan of Nu 215,871.91 millions, about 12,941 loan accounts (amounting  to  Nu.56,534.40m) have been deferred, which is about 8.7% of the loan accounts and 26.2% of the loan amounts deferred. This was shared by Lyonpo Lekey Dorji, Ministry of Finance (MoF) to the Bhutanese media, yesterday (April 26th, 2024).

Expressing that as a minister of finance, Lyonpo Lekey said that the deferment and that the Macroeconomic Framework Coordination Committee (MFCC) and its technical committee with professionals from the Royal Monetary Authority (RMA), MoF and other economic sectors conducted studies on deferment.

Lyonpo 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,” Lyonpo said.

The minister further reminded that the first deferment of loans started in April 2020 through four monetary measures: a blanket deferment was given for 2 years, and for the last monetary measure, deferments were given to only selected sectors with high risks. This monetary measure ends in June 2024. “Deferment was a temporary solution and -our- experts at IMF, ADB and the World Bank, and our own local economists advice against continuing deferment,” he continued.

The minister further underlined that deferment of loan is a monetary policy, and that monetary measures are in the purview of the RMA (central bank). “RMA has been employed but since Bhutan has a unique economy, fiscal and monetary policies must work together, so RMA and MoF work closely,” Lyonpo Lekey said.

Additionally, the minister shared what has been happening on the deferment front so far. He informed that banks have notified their customers who have loan deferral accounts to meet their account managers and plan how to go about after June 30th 2024.

Further, banks and their customers will assess the situation and make an informed decision as to how to carry the account forward. “Banks know their customers the best and RMA and the government should not intervene unless genuinely required,” Lyonpo 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 31st, 2024,” he added.

Lyonpo informed that the MFCC study suggests all deferments should end by December, 2024. “Deferment post 2024 could dampen the economic growth limiting credit.

By Sherab Dorji, Thimphu