Tshering Dorji

The financial sector in the country has suffered a loss of Nu 2.54B in September this year due to increased interest expense and non-performing loans (NPL).

In March this year, both banks and non-banks incurred a loss of Nu 1.19B for the same reasons. The loss in June this year was recorded at Nu 1.49B.

This is according to the financial sector performance review of the central bank, which also reveals service and tourism sector as the highest defaulter.

Service and tourism sector recorded the highest NPL, which is obvious considering the sprouting numbers of hotels and travel businesses.

Analysis on the loan classification of the financial sector indicated that both loans and NPL have increased by Nu 20.78B and Nu 8.89B respectively. Records of sectoral NPL indicate that service and tourism has the highest share with 31.12 percent, followed by trade and commerce with 21.51 percent, production and manufacturing with 11.53 percent and housing with 11.4 percent.

Even in March, service and tourism had the highest share of NPL with 26.97 percent, followed by trade and commerce with 24.03 percent and housing with 12.28 percent.

Compared with September 2018, NPL in September this year increased by Nu 10.27 B, NPL share of the service and tourism increasing to 30.5 percent.

NPL is considered a bad loan, in which the debtor has not made the scheduled payments beyond 90 days.

Some banks have even stopped providing loan in these sectors in urban and western region since the number of hotels has grown manifolds. 

However, even as the government, both current and past, boasts of its tourism flagship and royalty waiver in the east, there is a dearth of tourist standard hotels in the east.


The rising NPL is one of the early signs of distress, which in other countries can collapse the banking system and the entire economy in the process.  

Given the high portfolio of loan towards service and tourism and housing, and these sectors leading the NPL could pose a big threat.

For instance, housing loan comprise of more than 26 percent of the portfolio, the highest in terms of percentage share of total loan outstanding. This means that roughly 90 percent for these loan were used to import materials and labour.

The RMA has classified such types of loan, which includes personal loans, staff loans, transport loans and education loans as ‘non-enterprise loan,’ meaning that these loans contribute to growing imports, doesn’t generate employment and export earnings.

The RMA report revealed that almost half (45 percent) of the outstanding loans are non-enterprising.

The service sector, which is dominated by tourism and hospitality, forms more than 12 percent of the loan portfolio. The situation is quite similar to housing since it leads to imports. However, some kind of revenue generation, foreign currency earning and employment generation is recorded. But this sector caters to a high NPL, which is a cause of concern.

It was the lending spree, particularly in building and construction that ignited the rupee crisis a few years ago as most of the credit translated into imports, shedding the country’s rupee reserve as well as hurting the current account balance. This was followed by loan and import restrictions on housing, vehicles and furniture.

Micro, cottage, small, medium and large industries, which are basically generators of revenue, employment and earnings from export had Nu73.39B of outstanding loans as of September this year, an increase from Nu 63.14B in September 2018, showing a growth of 16.2 percent.

Of the total loan of Nu 133.13B provided by the financial sector, the share of loans to medium enterprises has the highest exposure with 24 percent (Nu. 31.85 billion) followed by large enterprise and small enterprise with 16 percent (Nu. 21.34 billion) and 10 percent (Nu. 13.11 billion) respectively. The loan to micro and cottage enterprises comprised of only 5 percent (Nu. 7.09 billion) of the total loans.

The analysis on the loans to MCSML and non- enterprise reveals that loans are on an increasing trend over the years. This is attributed to the registration of six micro-finance institutions which include Rural Enterprise Development Corporation Ltd., RENEW Micro-Finance Pvt. Ltd. Bhutan Care Credit Ltd. BAOWE Pelzhing, Microfinance Bhutan Pvt. Ltd. and Tarayana Foundation.

The MFIs currently operate in all 20 dzongkhags benefiting both the rural and urban clients. As of September 2019, the MFIs sanctioned a total loan of Nu 816.99M.

However, agriculture loan still forms less than 2 percent of the total portfolio.


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