The construction industry in the country is still grappling with issues, especially related to observation period, bank guarantees (BG) and non-performing loans (NPL), which, contractors say are hurdles in making the NPL repayment.
While the central bank has its own reasons and have remained adamant, contractors say that some companies are dying and others, including private limited companies on the verge of dissolving.
A construction company proprietor shared that th ey are greatful for the time extension to pay loans. However, banks have stopped issuing the BG, even when one of their partners is under NPL. “When we go to the bank, the bank is not providing BG as one of our partner has NPL. Due to this, the time extension provided to us have not really benefited us,” he said.
Another proprietor of a construction company said he has released all employees from his company as he has not been able to pay them as the company is in under observation period.
Underlining that there is no need of keeping the observation period of six months, another proprietor said he does not see the merits of the observation period. “I don’t see any advantage of observation period or the need to have such observation period as during the observation period if one of our partner goes under NPL, we are not able to work with the banks and we feel we are bearingthe same consequences. It is now a case of survival.”
Another owner of a company, who said he is frustrated, said it is great that the RMA is working for a good cause.“However, it has not considered the other side of the construction industry.I feel that the RMA has looked only through the banking side. We would be very grateful if they consider our side too,” he said.
Meanwhile, the Construction Association of Bhutan (CAB) and Bhutan Chamber of Commerce and Industry (BCCI) have decided to put up their submission to Royal Monetary Authority (RMA). The submission mainly includes doing away with the six month observation period.
“The biggest NPL issue is in the construction industry as the construction industry is slightly different from other businesses,” the Executive Director (ED) of CAB, Tshering Younten said, adding that though individual sectors might have their own issues, currently the construction sector is highly affected by NPL issues, BG issues, observation period, amongst others.
The ED said that there are construction firmswho have a minimum of five shareholders. “If one shareholder has NPL then the other four shareholdersare affected,” he said.
On BG, the ED said that without BG the contractors loose other opportunities. “It has even led to termination of the works as many agencies do not accept the contractors without BG, though some are working with the cash warranty,” he said.
Similarly, the President of BCCI, Tandy Wangchuk said, “With such challenges among the construction industry in the country, we will put our submission to RMA to do away with the observation period to ease the NPL issues.”
The President shared that actually there is not much risk with the banks in the country as the banks won’t provide the loan without a collateral. He added that the interest rate is high in the country. “I don’t see much risk to the banks. The RMA don’t have to bother much,” he added.
Meanwhile the President said that they are hoping for a good outcome. Nonetheless, he said that if the NPL issue continues the recovery chances are very less. “Down the line, if the NPL issues continue and with the observation period of six months, then there is not much possibility for the private sector especially the construction industry to pick up smoothly,” he added.
