Financial Crime World

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Financial Institution Cybersecurity Risks in Bhutan: Growing Concerns

A growing concern for financial stability in the Bhutanese banking sector has been flagged by Fitch Solutions, citing rising risks over the coming decade. Although capital adequacy remains above the central bank minimum of 10%, a declining trend and weak economic environment pose significant challenges.

Capital Adequacy Decline

The non-performing loan (NPL) ratio has more than doubled over the past decade, reaching 8.4% in 2019. This uptrend is expected to continue due to the ongoing COVID-19 pandemic’s impact on the economy. As a result, lenders may choose to keep lending interest rates high, hampering monetary policy transmission.

Economic Challenges

Credit growth is likely to strengthen slightly but remain below trend levels. The government has announced stimulus measures to support credit growth, including soft loans and credit guarantees for small and medium enterprises. Meanwhile, deposits growth is expected to remain strong due to remittances surging since the start of 2020 and a weak income outlook encouraging people to save rather than spend.

Tourism Impact

The Bhutanese economy’s reliance on tourism, which accounts for around 5% of GDP, has been severely impacted by the pandemic. The ongoing global crisis is likely to lead to a contraction in real GDP of 3.5% in 2020. This raises concerns about the sustainability of the banking sector and its ability to withstand potential shocks.

Cybersecurity Risks

Despite the near-term risks being low due to adequate capitalization, Fitch Solutions flags that the persistence of declining trends could pose problems over the coming decade. The country’s reliance on remittances and a weak economic environment make it vulnerable to external shocks, highlighting the need for strengthened financial institution cybersecurity measures to mitigate potential risks.

Data Highlights

  • Bhutan’s capital adequacy ratio has been declining, from 14.6% in 2011 to 12.2% in 2019.
  • The non-performing loan (NPL) ratio has more than doubled over the past decade, reaching 8.4% in 2019.
  • Credit growth is expected to strengthen slightly but remain below trend levels.
  • Deposits growth is expected to remain strong due to remittances surging since the start of 2020 and a weak income outlook encouraging people to save rather than spend.

Conclusion

Fitch Solutions’ analysis highlights growing concerns about financial institution cybersecurity risks in Bhutan. The country’s banking sector faces challenges from declining capital adequacy, rising NPLs, and an uncertain economic environment. To mitigate these risks, strengthened financial institution cybersecurity measures are essential to ensure the long-term sustainability of the sector.