The pandemic has disrupted both the economy and the banks making borrowers unable to repay loans thereby affecting the revenue inflow of the banks as interest from loans and advances is the major source of revenue for the banks in the country. Bhutan National Bank is no exception to this malady.
The Chief Strategy and Information Officer with the bank, Dorji Penjor, said the hardest hit economy is the tourism sector making them unable to generate adequate revenue to pay their loan installment where on the other hand banks are affected as they face hard time on covering their other associated fixed operating cost expenditure.
He further added that because of loan repayment deferment, it has resulted in significant increase in interest cost but banks interest income has gone down on the one hand and deposit interest has significantly gone up consequently making banks to incur loss.
However, digital banking and saving deposits has drastically increased. BNB’s Chief Operation Officer, Hem Kumar Acharya, said users of the digital banking of BNB have increased from 30,000 to 70,000 during this time of pandemic and because of loan deferment; the saving deposit has increased drastically.
He further added that the number of customers visiting the office for the services has also decreased as many people are aware of Covid-19 protocols where they prefer sitting at home and avail the online payment services.
During the critical crisis of Covid-19, there is a very high chance in increasing the Non-Performing Loans (NPL) but in our country the NPL won’t increase at least till June 2022.
The Chief Credit Officer, Tandin Dukpa said the government had already issued series of monetary measures for NPL.
Meanwhile, 100 percent interest waiver which was born 50 percent by Druk Gyalpo’s Relief Kidu (DGRK) and 50 percent by Financial Institutions (FIs) from April to June 2020, while 100 percent waving of interest support from DGRK from July to September 2020 and 50 percent waving of interest support from DGRK from Oct 2020 till June 2022.
Banks had also deferred loan repayment till June 2022 and one percent interest rebate as an incentive for loan clients who had continued to pay their loan installment during the eligible deferment period. There is also soft term loan to business entities to meet their operational expenses.
The Chief Credit Officer further added that NPL Resolution Framework was put in place by the central bank which would allow the bank to review the NPL accounts and segregate into viable and non-viable loans.
He said that the frame work will also explore corrective actions to revive or rehabilitate the viable loans through restructuring, rescheduling and renewal. And will work on the non-viable loans for foreclosing as per the Guidelines on Foreclosure and Write off NPLs, 2021.
The process of NPL is implemented through three-tier committee in order to make convenient for the customers. The Inter Financial Institution Committee (IFIC) comprising of legal and credit heads of FIs with representation from Royal Monetary Authority, Chief Executive Officer (CEO) Level Committee comprising of CEOs of FIs chaired by Deputy Governor of the RMA; and High Level Committee chaired by the Finance Minister.
Because of the banning of tourism, the inflow of the international transaction has drastically decreased but the retail payments continue which is also at a minimal percent whereby the usage of the cash and ATMs has also reduced.
By June next year, borrowers have to resume their loan repayment with full interest as the Royal Kidu scheme is only until June 2022.
Dorji Penjor said, “Banks need to start working on restructuring the loans such as repayment terms and even the interest rates to ascertain the borrowers’ loan repayment capacity based on their income earning capacity and accordingly extend the loan tenor so that borrowers are enabled to make loan repayment comfortably. This will help in containing NPL.”
Meanwhile, the pandemic has adversely affected banking sector and economy at large, but it has also made banking sector to realize how important it is to leverage on digital technology to provide its banking services.