The highest NPLs can be seen in the production/manufacturing, and trade/commerce sectors with Nu 2.82bn
As of December 31, 2021, 91% of the total loans are Performing Loans amounting to Nu 160.5bn and the remaining 9% are Non-Performing Loans (NPLs) amounting to Nu 15.7bn, according to the Royal Monetary Authority (RMA).
NPLs of the Financial Institutes (FIs) have decreased from Nu 24.4bn of 15% in 2020 to Nu 15.7bn of 9% in December last year.
Out of the regular loans of Nu 160.5bn, 64% are the loans provided towards the most hit sectors including tourism, production and manufacturing, trade and commerce, commercial transport, and commercial housing loans amounting to Nu 102bn.
An official from the RMA said that out of the total tourism sector loans of Nu 26bn, 6% were NPLs amounting to Nu 1.5bn as of December last year.
“In the worst-case scenario, the entire tourism portfolio of Nu 26bn could be at risk of becoming NPL,” he said.
He shared that the pace of recovery in the manufacturing sector depends on how quickly the industries can resume production at a normal level and how severely the pandemic has disrupted supply chains including the availability of labor.
“Total loans to the manufacturing sector stood at Nu 22bn as of December last year, out of which Nu 2.8bn or 13% were NPLs,” he said, adding that personal loans, particularly consumer loans that were given to the private sector employees, may also likely see an increase in NPLs as a result of job losses.
However, the total loan exposure of FIs towards the most-hit sectors makes around 62% of the total loans as of December last year amounting to Nu 109.3bn.
The total loan outstanding amounted to Nu 176.2bn, of which 77% are provided by the banking sector and the remaining 23% by non-banks.
Among the loan sectors, the highest loan outstanding can be seen in commercial housing loans with Nu 36.85bn, followed by tourism-related loans with Nu 26.40bn, production and manufacturing loans with Nu 22bn as of December last year.
According to the RMA, the highest NPL can be seen under production and manufacturing, and trade and commerce sectors with Nu 2.82bn and Nu 2.83bn respectively followed by contract (construction-based) loans with Nu 2.4bn as of December last year.
Meanwhile, weak profitability boons a challenge to future capital resilience as profits are an important element of capital growth. As of December last year, FIs have made a profit mainly on account of the decrease in the NPLs.
The RMA official said that the loan deferment facility and interest payment support Kidu has helped the FIs to prevent further build-up of the NPLs and huge negative net interest income.
“Without this stimulus package, the COVID-19 pandemic might have caused a decline in the interest income of the FIs, and potentially impacting the capital and earning of FIs,” he said.
The financial sector made a profit of Nu 3.7bn (after tax) as of December 2021, he said.
“If the current economic conditions persist over the medium term and borrowers are not able to repay their loans, the FIs would be under pressure and there is the need to recognize the losses on the loans by writing down the value of their capital.”
Kinley Yonten from Thimphu