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Financial Sector Development in Bhutan

Overview

The financial sector in Bhutan has experienced significant growth over the past decade, with asset growth averaging almost 20% per year and reaching Nu98.8 billion (approximately $1.62 billion) by 2014. The banks account for about 90% of total assets.

Recent Developments

Three new banks have joined the two preexisting commercial banks since 2009: Druk PNB Bank, T-Bank, and Bhutan Development Bank. Additionally, a private life insurance company, Bhutan Insurance, has been established. The stock exchange, Royal Securities Exchange of Bhutan, has seen an increase in market capitalization and listed firms.

Financial Sector Challenges

The financial sector in Bhutan faces several challenges:

  • Current account deficit: Much of the goods and services purchased with credit are imports, leading to a growing current account deficit.
  • Dependence on Indian rupee: The shortage of Indian rupees has forced the RMA to introduce administrative measures to contain demand for the currency.
  • Limited supply of government bonds: The lack of alternative assets by which to fund liabilities has led to the allowance of nonbanks to engage in retail lending.

Reforms and Initiatives

The following reforms and initiatives are aimed at deepening the financial sector:

  • Credit Information Bureau (CIB): Established in 2009, CIB facilitates monitoring of borrowers to improve access to credit.
  • Central Registry for Secured Transactions: Formally established in July 2014, this registry encourages secured transactions and eases collateral requirements imposed by lenders.
  • Treasury Bills: Issued by the Ministry of Finance since 2009 for fiscal management and monetary policy.
  • Electronic funds transfers and clearing system: Implemented in June 2010 for electronic transfer of salaries, dividends, and utility payments.

Conclusion

The financial sector in Bhutan has experienced significant growth over the past decade, with efforts underway to deepen the sector through reforms and initiatives aimed at improving access to credit, encouraging secured transactions, and enhancing monetary policy. However, challenges persist, including a growing current account deficit and dependence on Indian rupees.