Loans to contractors have emerged as the riskiest segment for Bhutan National Bank Limited (BNBL), recording the highest non-performing loan (NPL) ratio at 11.96% as of August 31, 2025. This was followed by the trade and commerce sector at 6.42%, according to the bank’s latest disclosures.
At the opposite end, the most secure categories remained loans against term deposits and education loans, which posted NPLs of just 0.35% and 0.46%, respectively. Overall, BNBL’s NPL ratio stood at 4.17%, broadly consistent with the levels observed over the past few years.
A BNBL official acknowledged the challenges in loan recovery amid Bhutan’s slow-paced economic rebound but stressed the bank’s proactive stance.
“Recovery has been difficult, but we continue close monitoring and engagement with borrowers. Our priority is to keep NPLs below the regulatory threshold through follow-ups and borrower support measures. We are cautiously optimistic that a strengthening economy will ease repayment pressures,” the official said.
Meanwhile, the Royal Monetary Authority (RMA) has provided a broader policy framework for financial institutions (FIs) to manage distressed loans. Under the central bank’s restructuring facility, only performing loans and viable NPLs—and not willful defaults—are eligible.
An RMA official explained that “viable” NPLs arise when borrowers face temporary financial stress but retain the potential to revive. In contrast, non-willful defaults occur when circumstances are beyond a borrower’s control, such as policy shifts. “If a business took a loan to set up a plastic factory but the government later banned plastics, that would be considered a non-willful default,” the official noted.
To strengthen oversight, the RMA introduced its Regulations on Non-Performing Loan (NPL) Management 2025, which requires banks to classify, restructure, foreclose, or write off bad loans systematically. Restructuring measures may include revised repayment schedules, moratoriums, or term loan conversions, with a six-month observation period before loans can be reclassified as performing.
According to the RMA’s Q4 Macroeconomic Situation Report, the trade and commerce sector accounted for the highest overall NPLs across financial institutions, totaling nearly Nu 1.9 billion. The housing sector followed closely with over Nu 1.7B, reflecting their significant weight in the lending portfolio and their central role in Bhutan’s economic activity.
Other major recipients of loans include production and manufacturing, transport, and contractors, each with allocations between Nu 700M and Nu 900M. These sectors are considered vital for infrastructure, supply chains, and industrial growth.
Meanwhile, the hotel and tourism industry, agriculture and livestock, and service sector loans ranged from Nu 500M to 700M, highlighting a mix of traditional and modern economic drivers. By contrast, the least financed categories were loans against term deposits, loans against shares, forestry and logging, and staff incentive loans.
Central bank officials underscored that financial institutions, regulators, and the government continue to refine rules and policies to manage NPLs effectively while ensuring critical sectors receive the financing they need.
The balancing act—between strengthening financial stability and fueling growth in priority industries—remains central to Bhutan’s banking strategy. With contractor loans now topping the NPL charts, the spotlight is firmly on whether recovery efforts and regulatory safeguards can keep rising risks in check.
Sherab Dorji from Thimphu
