FIs told to restructure bird flu affected loans

KATHMANDU:

Poultry farmers struggling to repay loans in the aftermath of the bird flu epidemic can heave a sigh of relief as financial institutions have been asked to restructure the affected poultry loans.

The central bank has directed financial institutions — commercial banks, development banks and finance companies — to restructure or reschedule loans floated for poultry farming that

were affected by the avian influenza outbreak last

summer.

“If the loans floated for poultry farming become difficult to recover, lending institutions can restructure or reschedule the loan for one time,” says a circular issued by Nepal Rastra Bank (NRB).

The restructuring of the loans allows the borrowers to extend the repayment period, thus avoiding a case of default. Loan rescheduling makes repayment by the borrower easier, as the lender agrees on new terms and conditions, along with fixing new repayment schedule according to the financial situation of the borrower.

“Restructuring of poultry loans will provide farmers time to get back on their feet and not worry about the repayment for now,” pointed out vice president of Nepal Bankers’ Association Upendra Poudyal.

“Banks can also offer a rescue package to the affected farmers,” he added.

Moreover, rescheduling also removes the need for the banks to provision a large amount to cover for possible loan defaults. Restructuring a bad loan into a good one means a bank — that had set aside 100 per cent of the outstanding amount to be repaid for the loan that has defaulted — can write back the amount and provision only one per cent of the loan. The lower provisioning means better profits for the bank.

Although, financial institutions need to provision 12.5 per cent of the outstanding amount for probable default in case of restructured loans, NRB has allowed banks to set aside only one per cent of the loan amount for the rescheduled poultry loans.

However, loans can be rescheduled, given that the borrower presents a proper repayment plan, sufficient collateral and future prospects. “We have clarified that banks can only reschedule the poultry loans that were actually affected by the bird-flu epidemic,” pointed out an official of NRB’s regulation department.

“Financial institutions need to cross-check the requests with government data of the affected farms and only those farms located in the affected areas will be eligible,” added the official.

The bird flu outbreak during July and August 2013 led to massive culling of chickens and chicks in Kathmandu Valley, Kavre, Chitwan and Hetauda. The authority — Department of Livestock Services — culled over a million chickens and destroyed 1.2 million units of eggs to contain the infection from spreading.

The move severely affected the poultry business, which apparently has investments worth billions of rupees. According to poultry related industry representatives, the sector’s loss stands at over Rs seven billion but the government has provided less than Rs 300 million as compensation so far. Financial institutions’ portfolio is supposed to contain about Rs three billion poultry loans.

“The amount of compensation announced by the government is nowhere near enough to make up for our losses, thus if banks show a bit of leniency in terms of loan repayment, it will help the businesses recover,” said president of Nepal Hatchery Enterprises Association Shiv Prasad Sharma.

Poultry farmers including representatives of Nepal Poultry Federation, Nepal Hatchery Udhyog Association and Nepal Poultry Traders Association have called on NRB governor and president of Nepal Bankers’ Association to consider lowering the interest rates for their loans.

Source: THT