Moratorium on Housing and Hotel Construction loans extended till June

The Royal Monetary Authority (RMA) has further extended the loan moratorium on new housing and hotel construction loans.  Under the deferment, the central bank has decided to extend the temporary moratorium on new housing and hotel construction loans for 6 more months, that is, until June 30, 2024.

The central bank has decided to extend the temporary moratorium considering the current exposure of the financial institutions (FIs) towards the construction of houses and hotels which is high, as well as potential future risks from loans under the gestation period.

In addition, a press release from the central bank towards the FIs stated that all the institutions shall not accept, appraise, or approve any new loan applications for the construction of houses, both home and commercial, and hotels including the ongoing constructions. “Only loans for repair and renovation shall be allowed,” the press stated.

An official from one of the FIs said that it is important to highlight that the organization operates within the framework established by the central bank and that all the directives and guidance concerning commercial loans, including the moratorium, are provided and governed by the RMA.

“Our role primarily involves adherence to the guidelines provided by the regulatory body, ensuring compliance and implementation within our operational scope,” the official said.

Similarly, another official said that the moratorium was based on the position of the country’s reserves where the bank cannot comment on the loan moratorium extended by the central bank given that the reserves still seem to be on the marginal side.

The reserve position for FY 2022-2023 was estimated at USD 689M which was adequate to cover 14 months of essential imports.

Similarly, the latest data shows that Bhutan’s foreign reserve has reached USD 464.66M as of October 2023, an astounding slump from the figures in the same period last year.

According to the monthly statistical bulletin released by the RMA of Bhutan, the foreign reserve has been decreasing from the month of June to October 2023. In the month of June last year, the foreign reserve stood at USD 532.23M, however in the month of July and August, the foreign reserve has decreased and stood at USD 472.40M and USD 468.41M respectively.

The central bank announced the first temporary suspension of this loan with effect from June 9, 2023 until December 31, 2023. The moratorium was imposed in view of broader concerns from the RMA as well as the Royal Government of Bhutan (RGoB) on the associated outflow of foreign currency as well as the high credit concentration and Non-Performing Loan (NPL) risks in these two sectors.

According to the central bank, the moratorium was applied to all the pending applications that are at various stages of appraisal by the financial institutions and on the new loans for expansion.

However, the central bank didn’t apply the moratorium to those loans that were sanctioned or approved as of close of business, June 8, 2023, irrespective of the status of loan disbursement and repairs and renovation, amongst others, stating that the moratorium shall be reviewed at the end of the year.

The press release from RMA mandates all the FIs to disseminate the directives to all the branches of FIs and to strictly comply with the directives from the central government up until June 30, 2024. “Non-compliance to this directive by FIs will be subject to penalty as per the Penalty Rules and Regulations of RMA,” it read.

Sherab Dorji from Thimphu