Poultry farmers have emerged as the major contributors to non-performing loans (NPL) in Bhutan’s National Credit Guarantee Scheme (NCGS), according to Finance Minister, Namgay Tshering.
During question answer session in the Parliament on 16 June, the minister of Finance (MoF) provided insights into the alarming number of loans that have become NPL under NCGS and shedding light on the situation. This was in response to questions raised by Member of Parliament (MP) Ugyen Wangdi, representing the Dramtetse-Ngatsang constituency, Monggar.
The NPL rate in the NCGS currently stands at 11%, indicating a significant portion of loans that are at risk of default. Meanwhile, NPL are categorized as such when there are indications that the borrower may be unable to repay the loan or if more than 90 days have passed without the borrower making the agreed-upon payments.
The NCGS was initially introduced as a temporary measure to support small businesses and maintain economic stability during the COVID-19 pandemic. It aimed to provide assistance to struggling enterprises, offering a crucial lifeline during challenging times.
The scheme granted loans totaling Nu 852 mn to 214 projects, with the National CSI Bank, Bhutan Development Bank Limited, and Bank of Bhutan acting as the primary lenders.
Minister Namgay Tshering revealed that the main reason behind the increasing NPL rate within the NCGS is the significant involvement of poultry farmers.
The minister pointed out that unforeseen fluctuations in poultry feed prices and other associated expenses had created unprecedented challenges for these farmers.
“As a result, a higher percentage of loans granted to poultry farmers have turned non-performing,” he said.
The disclosure has raised concerns about the financial health of the poultry industry and its ability to overcome the mounting loan burdens. Poultry farmers now face the arduous task of navigating through the obstacles caused by rising feed prices and other expenses while striving to repay their loans.
Additionally, in response to MP Ugyen Wangdi’s concerns about the risk associated with loan recovery under the NCGS, Minister Namgay Tshering emphasized that the scheme was a calculated decision taken by the government to provide support during the COVID-19 pandemic. Under the NCGS, the government guarantees a portion of the loans availed for establishing viable businesses. The government covers up to 50% or Nu 30 million, whichever is lower, while the remaining balance is shared between the lender and the borrower.
“The NCGS was launched as a counter-cyclical policy measure to mitigate the economic disruptions caused by the pandemic,” the minister said.
While the scheme aimed to alleviate the financial strain faced by small businesses, the unexpected challenges in the poultry industry led to an elevated NPL rate within the NCGS.
The minister also said that as the government seeks to address the concerns raised by the high NPL rate, stakeholders will collaborate to explore strategies to support poultry farmers and facilitate loan repayments. This will be done by providing financial counseling and guidance, or implementing measures to stabilize poultry feed prices.
Meanwhile, the minister also said that NCGS has not only provided relief to the private sectors in the period of the pandemic but also provided employment to around 1,800 people. He also said that the gross capital formation from the NCGS amounted to around 692 million.
Gross formation capital refers to buildings, machinery, equipment, and infrastructure) that are produced within an economy during a specific period of time. It is an important indicator used in economics to measure the level of investment and productive capacity within a country.
It represents the total investment made by businesses, governments, and households in the production of capital goods. It includes both fixed assets, which are used repeatedly in production over an extended period, and changes in inventories, which are short-term additions to or subtractions from stocks of goods.
Tshering Pelden from Thimphu