Banks deny halting housing loans

Business National News

Banks have clarified that they never put a halt on housing loans.

Bank officials said that local media reporting that three banks have put a freeze on housing loans is false.

However, Bank of Bhutan (BoB) officials said that it was just that the bank had to temporarily stop accepting housing loan applications for the time being since they were not able to process the loan applications faster.

“We didn’t want our clients to wait long and create inconvenience. We feel that there is some kind of communication gap created here before understanding the actual scenario,” said a BoB official.

The BoB official also mentioned that they are still in the process of clearing pending loan applications, and once all these are cleared, they will start accepting housing loan applications. This may take about a month or two only.

He also said that housing loan applications were not accepted from June this year and BoB will start accepting applications very soon again which may take around a month or two after clearing the pending ones.

“The Bank may come up with more stringent screening process to control housing loan but will never stop unless required since the Bank’s main business is lending from the deposits we get from our clients,” said the BoB official.

Similarly, the Chief Executive Officer (CEO) of T-Bank, Pema Tshering said that they never put a halt on housing loans for their clients.

The CEO of Bhutan Development Bank (BDB), Phub Dorji affirmed the same.

According to the annual report of the Royal Monetary Authority (RMA), the construction sector loan amounted to about Nu 25bn in 2018. It constitutes about a fourth of the total lending made by the financial institutions in Bhutan and about a fifth of the non-performing loan.

However, a professor in Economics at Royal Thimphu College, Sanjeev Mehta said that it is very significant in terms of its magnitude and freezing housing loan could be several possible repercussion of it.

He said that default rate on such loan must be on the rise and that too very significantly and this move can be seen as a crisis mitigation measure. 

“I believe that a complete freezing would only exacerbate the crisis as even the potentially viable projects may turn unprofitable when faced with liquidity crunch and would default,” he said, adding that the bank decision would affect market sentiments and property prices may nose dive. 

He also added that in this situation, the banks will not be able to recover loan value from the mortgage assets. This may sink the banks further. Ideally banks should have made the distinction between wilful defaulters, defaulters and non-defaulters.

The professor also mentioned that the banks will look for rechanneling the credit to other sectors.  Risk of default in other major borrowing segments- trade and commerce, services and tourism and manufacturing, is also not much different. Banks would find it difficult to find safer alternatives.

“I think it may slow down the growth rate of GDP,” said the professor.

Blogger Yeshey Dorji said that he feels the bank should hit the brakes on housing loan.

“I am told that some building owners have built their buildings on more than 130% borrowed money. Such easy money has caused real estate prices in Thimphu to rise to unrealistic levels,” said the blogger.

He also mentioned that today Thimphu is filled with thousands of buildings built on loans that are quite obviously unserviceable. “It is for this reason that I strongly oppose the idea of shifting some Ministries and Departments out of Thimphu to rural locations – with the objective to decongest Thimphu city. Such a move would be catastrophic – hundreds of building owners would be rendered bankrupt.

pic courtesy: google

Dechen Dolkar from Thimphu

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