In Bhutanโs evolving capital market, Financial Institutions (FIs) continue to serve as essential financial intermediaries, mobilizing deposits and directing them toward productive investments. Both banks and non-bank entities, including insurance companies and pension funds, provide a range of credit facilities, primarily funded through deposit liabilities and insurance and pension contributions.
During FY 2024/25, credit extended by FIs expanded significantly by 17%, touching Nu 257,899.5 million, up from Nu 220,474.1 million in the previous FY. This growth was broadly reinforced by strong lending activity in the housing, service and tourism, and production and manufacturing sectors, hinting at increased economic activity and rising demand for finance across key segments of the economy.
Credit to the housing sector, which represents 28.5% of total FIsโ loans, stood at Nu 73,521 million, with commercial housing comprising the dominant share (81.6%). Residential home loans accounted for 16.8%, while real estate-related loans made up 1.6%.
Lending to the service and tourism sector, accounting for 22.3% of total credit, amounted to Nu 57,524.7 million, primarily concentrated in the hotel and tourism industry, which represented 60.9% (Nu 35,032.7 million) of this segment. Within the remaining service sector (Nu 22,492 million), loans were directed toward airline services (42.6%), ICT and professional services (14.6%), and other service activities (42.9%).
The production and manufacturing sector, comprising 12.9% of total credit, witnessed buoyant growth of 32.8% to Nu 33,395.7 million, driven mainly by loans for hardware and construction materials (Nu 14,601.3 million) and groceries and related commodities (Nu 7,542.6 million). The remaining 36.2% of loans were extended to trade and commerce, transport, personal, education, agriculture, and loans against shares (Nu 93,458.1 million), with some sectors, including transport, agriculture, and loans against shares, recording slight declines.
In the domestic banking sector, deposits remain the primary source of credit funding, considering the weak capital market. Credit growth relative to deposits increased the credit-to-deposit ratio from 79.1% in June 2024 to 81.8% in June 2025. Banking sector credit rose by 17.5%, while deposits grew by 13.6%. Other funding sources, such as subordinate debt and bonds, accounted for 1.6% of total credit funding. Overall, the banking sector accounted for 82.4% of total loans outstanding, while non-bank institutions contributed 17.6%. Among the banks, the largest state-owned bank (Bank of Bhutan Limited) held 35.5% of total credit, and within the non-banking sector, the National Pension and Provident Fund (NPPF) accounted for 9.3%.
According to the Royal Monetary Authorityโs (RMA) annual report 2025, monitoring and managing NPL remains a priority for the RMA to promote financial stability. As of June 2025, the gross NPL ratio improved to 3%, down from 3.3%.(Nu 7,333.3 million) in the previous FY, an outcome of proactive risk management by both FIs and the RMA. On the sectoral NPL front, the NPL in all sectors declined, except for agriculture, hotel and tourism, housing, trade and commerce. The housing sector remained the largest contributor to NPLs, accounting for 21.6% (Nu 1,695.8 million), followed by trade and commerce at 20.7% (Nu 1,623.2 million) and service & tourism at 13% (Nu 1,015.3 million).
The strong growth in FIsโ credit during FY 2024/25 reflects rising demand across key sectors, supported by healthy funding and prudent lending practices. The decline in the gross NPL ratio underscores improved financial soundness, and continued monitoring and risk management will be key to sustaining credit growth while maintaining financial sector stability.
Tashi Namgyal
From Thimphu
