An Assessment of Financial Sector Development in Bhutan

ADB South Asia Working Paper Series No. 44, August 2016

41 Pages Posted: 28 Mar 2017

Date Written: August 22, 2016

Abstract

This paper presents the results of an investigation into the performance and stability of Bhutan’s banking system. The study has found that economic growth has fueled a large demand for household credit over recent years, and in turn, banks have responded by substantially increasing their loan portfolios. Private sector credit growth took o from its earlier steady pace in the years preceding 2008, reaching over 40% growth year-on-year in the 2009-10 fiscal year, and has retained a relatively high growth rate even as heavy import restrictions remain in place. 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. And while non-performing loans have decreased substantially from their peak of close to 40% in the mid-1990s, they are still relatively high, and are decreasing as much due to total private sector credit growth as they are to loan recovery rates. Within this context, this paper discusses policy recommendations to strengthen and improve the banking sector. These policy 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.

Keywords: finance, financial sector, financial sector development, Bhutan

Suggested Citation

Cole, Rebel A. and Carrington, Sarah, An Assessment of Financial Sector Development in Bhutan (August 22, 2016). ADB South Asia Working Paper Series No. 44, August 2016. Available at SSRN: https://ssrn.com/abstract=2941336 or http://dx.doi.org/10.2139/ssrn.2941336

Rebel A. Cole (Contact Author)

Florida Atlantic University ( email )

College of Business
777 Glades Road
Boca Raton, FL 33431
United States
1-561-297-4969 (Phone)

HOME PAGE: http://rebelcole.com

Sarah Carrington

Independent ( email )

No Address Available
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
46
Abstract Views
392
PlumX Metrics