An Assessment of Financial Sector Development in Bhutan
Economic growth in Bhutan has fueled a large demand for household credit over recent years, and while great strides have been made in deepening the financial sector and strengthening regulatory environment, much remains to be done.
This paper presents the results of a study into the performance and stability of Bhutan’s banking system. It finds that economic growth has fueled a large demand for household credit over recent years. In turn, banks have responded by substantially increasing their loan portfolios. Although the largest recipient of credit is the building and construction sector, personal loans now make up more than 18% of credit extended to the private sector. Within this context, this study discusses policy recommendations to strengthen and improve the banking sector. These measures include fostering banking sector competition, improving regulatory practices on both the monitoring and the enforcement side, and enhancing risk diversification and liquidity management practices.
- Overview of the Financial System
- Key Issues Facing the Financial Sector
- Review of Regulatory Arrangements in Bhutan
- Proposed Improvements to Supervision of Financial Institutions