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Sale of heavy vehicles at standstill (file photo)
Sale of heavy vehicles at standstill (file photo)

Loan reform affects traders

Phub Dem

Trading business has come to a halt of a sort.

All because of preferential loan that businesses and individuals do not enjoy anymore.

Seventeen traders met with economic affairs minister yesterday to discuss the issues facing the traders. The programme was organised by Bhutan Chamber of Commerce and Industry (BCCI).

Among others, the traders raised the concern of having to bear the brunt of a loan reform initiated by banks. Some said that limiting the credit facility has impacted the business beginning with the axing of jobs in their companies.

Since last October, the commercial banks made it mandatory for clients to bear 50 percent of the cost of the vehicle as equity contribution while availing transportation loan.

Traders said that even after hypothecating (practice where a debtor pledges collateral to secure a debt or as a condition precedent to the debt, or a third party pledges collateral for the debtor) the vehicle, banks are asking for mortgages.

The banks used to sanction 70 percent of the cost of vehicle as loan. However, now, for old clients, banks sanction only 50 percent and for the new client 40percent.

Traders say that customers are required to deposit equity portion to the bank before the loan is released.

Dawa Lham, an official from Samden Vehicles, said that although there were demands in the market, individual buyers were not able to show their collateral.

Having to pay stock holding cost and interest rates to the banks, she said was affecting her business.

“Initially, traders used to sell their vehicles on extension basis for those who could not pay advance, now banks made it compulsory to show/deposit the equity. Many clients cannot afford the whole payment at once,” Dawa Lham said.

A few traders said that after some buyers in collusion with traders hiked the cost of the truck to avail the full loan, the banks decreased the loan to 40-50 percent.

The Chief Executive Officer of Ugen Trading House (UTH), Ugyen Norbu Jamyang, said that because of few traders, such regulations were made, which affected all trading business. “Strict regulations need to be addressed to penalize such traders rather than enforcing the rules to all.”

During the discussion, dealers agreed to declare the actual price list so that banks are aware of the real price. If the banks revamped the process like before, the traders said they would corporate even if the banks increase the interest rate on commercial vehicles and construction equipment.

Trading businesses like UTH, State Trading Cooperation of Bhutan (STCBL), Samden Vehicles and other heavy vehicle dealers said that the reform brought their business to a standstill, claiming that most of them are now defaulting on loans.

UTH sold 275 units of trucks, averaging five trucks a week, last year. “We have sold only 58 units this year. The situation is similar to every trading business,” Ugyen Norbu Jamyang said.

He said that UTH still had equipment worth Nu 150 million in stock, “Since we are unable to clear the stocks, we are paying huge interest to the banks.”

The concerns from the traders mainly highlighted the economic crisis. They were of the view that if the prevailing state of affair is allowed to continue, Bhutan may really have a crisis at hand.

The dealers requested the government to intervene in addressing the economic slowdown.

Meanwhile, the dealers also reminded the government to start spending on the development activities to inject capital into the market to revive the economy.

Dealers were of the stand that banks should take ownership and take risk.

Some dealers said that banks denied taking account of the regulation. A bank official Kuensel talked to said that the banks had no say on the issue and to take up the issue with the central bank.

However, the secretary-general of BCCI, Sangay Dorji, clarified that the RMA governor denied having made any notification or regulation relating the issue.

The Economic Affairs  Minister Loknath Sharma will be taking up the issues of trading business hampered by loan reform to the government after having a comprehensive discussion with the traders yesterday

He asked BCCI to compile a report of the issue and submit it to the ministry as soon as possible.

Highlighting the issues as pertinent, Lyonpo said that MoEA alone could not solve the issue.  “The government will take up the issue and discuss with the Royal Monetary Authority and financial institutions.”

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