Loan repayment deferral to come with its own cost

Government’s loan deferment for Learn and Earn students in Japan simply means they can now study and need not worry about their loans for two to four years, but they must pay an additional Nu 100,000 or plus in addition to the loan amount to the banks for the deferred time

Financial institutions will not feel any implications for deferring loan repayment for students of the controversial Learn and Earn program in Japan according to Bhutan Development Bank Limited (BDBL) and Royal Insurance Corporation of Bhutan Limited (RICBL) that have given loans to the students through the overseas educational and skills development loan scheme.

The financial institutions maintained this after the government signed and issued an executive order on the deferment of loan repayment on March 1.

The government has also consulted the Royal Monetary Authority (RMA), BDBL and RICBL regarding its decision to defer the loan repayment. The Ministry of Labor and Human Resources (MoLHR) had a meeting with the central bank and banks on February 25.

RICBL’s Chief Executive Officer Karma said the loan amount is too small for them to make any difference. “Deferment of loan repayment will not have any financial implications on the banks,” said the CEO.

BDBL has given loan only to the first batch of youth under the Learn and Earn Program and has disbursed a loan amount of around Nu 40mn.

RICBL’s CEO also said that deferring the loan does not mean loss to the company because it is only the time period that has been pushed. “But the liability doesn’t change. Interest rate will be accrued every day until they pay,” he said.

He added that the company’s weighted average cost of fund is 8.35%, however, they have lent at 8% for this program, lower than their rate. “RICBL has cooperated with the government to find gainful employment for our youth. But there is business sense as we are borrowing at 8.35% and lending at 8%,” said the CEO.

The CEO said deferment of loan repayment is a collective decision and it is the only way to address the issue that youths are facing now. “There are many who are still paying the loan under the Learn and Earn program.”

According to records with BDBL, around 678 youths have availed the loan under the program. The total loan amount availed was around Nu 472.5mn.

The Deputy CEO of operational department of BDBL, Sonam Regal, said that the banks will not be impacted by deferment of loan repayment.

Meanwhile, every individual has availed a loan of Nu 700,000 for a period of five years with an interest rate of 8%.

BDBL’s Deputy CEO said currently the bank has not started the process of loan deferment. Currently, youth have to pay a monthly amount of Nu 14,000 per month against the loan.

   Seventeen youths have finished repaying the loans and they have closed their accounts with BDBL.

 With the deferment of loan repayment, graduates will have to pay Nu 17,000 every month and Class XII graduates will have to pay around Nu 19,000.

“This is because the interest rate has been accumulated during the grace period,” said Sonam Regal.

Meanwhile, the government has deferred the loan repayment by two years for university graduates and four years for Class XII graduates irrespective of whether they are in Japan or have returned to Bhutan.

The grace period will come into effect from March 1. The students availing this scheme must complete all formalities by May 31.

The equated monthly installment for the repayment of loans after the grace period of two and four years will be fixed by capitalizing all over-dues as well as interest accrued during the grace period.

Dechen Dolkar from Thimphu