ROYAL MONETARY AUTHORITY OF BHUTAN. Guidelines on Commercial Housing Loan and Home Loan

Transcription

1 ROYAL MONETARY AUTHORITY OF BHUTAN Guidelines on Commercial Housing Loan and Home Loan

2 (1) Short title Guidelines on Commercial Housing Loan and Home Loan (2) Authorization The Royal Monetary Authority is authorized to issue these Guidelines under the RMA Act 2010 in pursuance of the objectives stated in Sections 8 (a), 8(b), 8(d) and 8(e) of the RMA Act 2010 and Section 3 (a) of the Financial Services Act (3) Application These Guidelines are applicable to all Banks and other Financial Institutions (collectively referred to as Financial Institutions or FIs ) which are licensed by RMA to perform lending operations in Bhutan. (4) Definitions Terms used within these Guidelines are as defined below: i. Borrower means a person applying for commercial housing loan or home loan. Owners is defined as legal owners of the commercial property. Commercial Housing Loan (CHL) shall mean loans given for the purpose of construction/purchase of house/building/apartment and shall include repair of the house/building/apartment for the purpose of generating a profit, either from business activity, resale of property or rental or lease income. Home Loan (HL) means loan sanctioned for the purpose of construction of a house for personal residential purpose and shall include repair/purchase of house/apartment. v. Loan to Value (LTV) Ratio (Financing Limit) is the maximum limit up to which a FI shall finance, which shall be based on the appraised value of the asset, which is being purchased/constructed with a loan; vi. Loan to Income (LTI) Ratio shall be understood as follows: (a) In the case of CHL, it shall mean as a ratio of monthly debt obligation to that of monthly gross income from Commercial Housing of the borrower, expressed in per cent. (b) In the case of HL, it is defined as ratio of total monthly debt obligation to that of monthly gross disposable income from all sources, expressed in per cent. (5) Criteria (CHL & HL) (5.1) Commercial Housing Loan (CHL) i. CHL shall be provided only for construction/repair/purchase of house/building/apartment strictly for the purpose of generating a profit, either from business activity, resale of property or rental or lease income. Loans for repairs shall be permitted only after the first 10 years of occupancy or 10 years from the last period of repair. 1

3 CHL shall only be provided in the name of the commercial entity or under the name of owners. CHL shall not be clubbed with Home Loans. v. CHL shall be exclusively utilized by the borrower for the purpose indicated above and in the dzongkhag and the area of location sanctioned for. vi. CHL shall have a maximum loan term of 20 years. (5.2) Home Loans (HL) i. Home Loan shall be provided only for construction/repair/purchase of house/apartment for one unit personal dwelling. Loans for repairs shall be permitted only after first 10 years of occupancy. The loans shall be exclusively utilized by the borrower for the purpose indicated above. HL shall have a maximum loan term of 20 years. (6) Loan to value ratio (LTV) A financial institution shall compute the LTV ratio by using the following formula: (6.1) Loan to Value Ratio (Financing limit) for CHL loans shall strictly be as follows:- Loan Amount Financing Limit (Loan to collateral value) CH Loan Second hand Assets Up to Nu. 5 million 70% 60% Nu 5 million above but below or equal to Nu 20 million 60% 50% Above Nu 20 million 50% 40% Up to Nu. 10 million 50% Repairs i. The value of the property mortgaged shall be determined by a Property Valuation Committee comprising of Head Engineer of the FIs, unitl such time the property valuation firm is licensed by the RMA.The rates shall be same for all financial institutions and shall be made public on all the FIs/RMA website and shall be reviewed annually. 2

4 (6.2) Loan to Value Ratio (Financing limit) for HL loans shall strictly be as follows:- Loan Amount Financing Limit (Loan to Collateral value) Home loan Second hand Assets Up to Nu. 1 Million 80% 70% Nu 1 million above but below Nu 2 million 70% 60% Up to Nu 5 million 60% 50% Repairs Up to Nu. 0.6 million 50% i. The value of the property mortgaged shall be determined by a Property Valuation Committee comprising of Head Engineer of the FIs, unitl such time the property valuation firm is licensed by the RMA.The rates shall be same for all financial institutions and shall be made public on all the FIs/RMA website and shall be reviewed annually. (7) Debt Equity Ratio (7.1) Debt Equity Ratio for CHL i. The debt equity ratio of the loan irrespective of the loan size shall be 60:40 meaning that the Borrower shall inject 40% of the project cost as equity contribution. This equity payment shall not be a borrowed fund from a FI. (7.2) Debt Equity Ratio for HL i. The debt equity ratio of the loan irrespective of the loan size shall be 70:30 meaning the Borrower shall inject 30% of the project cost as his equity contribution.this equity payment shall be made from his personal resources and shall not be a borrowed fund from a FI. 3

5 (8) Repayment Capacity Methodology (8.1) Repayment Capacity Methodology for CHL i. FIs shall determine the monthly repayment installment of each borrower in a manner that is consistent with the property s monthly income. Every financial institution shall compute the Loan to Income (LTI) ratio of a borrower applying for CHL in accordance with the following formula: LTI = Montly debt obligation Montly gross income from property 100 The monthly debt obligation of a borrower shall consist of the sum of the monthly repayment installment of CHL. The LTI limit for all types of CH loan should be a maximum of 90%. The FI shall obtain a written legal statement, with all documentary proofs, from each borrower regarding his monthly gross income from the property against which the loan was sanctioned. (8.2) Repayment Capacity Methodology for HL i. FIs shall determine the monthly repayment installment of each borrower in a manner that is consistent with each borrower s monthly repayment capacity Every financial institution shall compute the LTI ratio of a borrower applying for home loan in accordance with the following formula: LTI = Total monthly debt obligations Monthlygross disposable income from all sources 100 The total monthly debt obligations of a borrower shall consist of the sum of the monthly repayment installments of all credit facilities granted by financial institutions and other creditors. The gross monthly disposable income from all sources, including the income from the collateral, shall consist of: Source Income Fixed Income of Income to be considered for the purpose of LTI calculation 100% of average of past 12 months income Variable Income Fixed and Variable Income Up to 70% of the average variable income for the past 12 months 100% of average past 12 months of income from fixed sources and up to 70% of average variable income for the past 12 months 4

6 v. The LTI limit for home loan should be 70% (8.3) The FI must ensure that the information given by the borrower is correct. The FIs shall prescribe various steps to be followed by the FI, including the self-declaration by the borrower or verification by the FI or both. (9) Internal Risk management and Reporting requirements i. FIs shall ensure complete and strict compliance to all the requirements of these Guidelines in approving CHL and HL which shall be the responsibility of the Board and the management through effective and efficient MIS and internal controls in place. All FIs board shall put in place an appropriate credit risk management policy to ensure proper implementation of these Guidelines. All FIs shall report to RMA in line with the offsite reporting framework which shall be supplemented by onsite inspections. In case of any non-compliance to the requirements of these Guidelines, a fine of Nu.5000 per day shall be levied to the non-complaint FI until such time the noncompliance is rectified. (10) Other requirements Based on the quantum, each FI shall ensure to have their own internal yearly credit policy in terms of % of credit growth, NPL, sectoral growth etc. (11) Applicability i. These Guidelines shall be applicable to all FIs engaged in lending business of CHL and HL. These Guidelines shall apply to new loans approved with effect from 1 st September These Guidelines shall come to force with effect from 1 st September