Liquidity levels across Bhutan’s financial institutions remained strong in fiscal year (FY) 2024/25, even as key liquidity ratios declined slightly amid expanding credit and rising economic activity, according to the latest data from the Royal Monetary Authority (RMA).
The central bank’s financial sector assessment shows that banks and non-bank financial institutions (NBFIs) continue to maintain liquidity levels well above regulatory requirements, indicating that the country’s financial system remains stable and capable of supporting economic growth.
Quick assets held by commercial banks increased by Nu 2,293.1 million, rising from Nu 65,223.5 million in FY 2023/24 to Nu 67,516.6 million in FY 2024/25.
Quick assets represent highly liquid resources that financial institutions can easily convert into cash to meet short-term obligations such as deposit withdrawals, payments, or operational needs.
The increase in banks’ liquid assets reflects continued deposit inflows and prudent liquidity management, enabling banks to maintain sufficient buffers while expanding lending activities.
Despite the rise in liquid assets, the Statutory Liquidity Ratio (SLR)—a key regulatory indicator measuring the proportion of liquid assets maintained by financial institutions—declined modestly for banks.
The SLR for the banking sector fell from 26.9% in FY 2023/24 to 24% in FY 2024/25.
However, regulators emphasize that the ratio remains comfortably above the prudential requirement of 20%, indicating that banks still maintain substantial liquidity buffers.
An official from the central bank noted that the slight decline in liquidity ratios reflects growing lending activity rather than any deterioration in financial stability.
“Even with the marginal decline, liquidity in the banking sector remains well above the regulatory threshold,” the official said. “The movement largely reflects increased deployment of funds into loans and investments as economic activity strengthens.”
Liquidity conditions among NBFIs showed a similar pattern, though with a slight decline in liquid assets.
Quick assets held by non-banks decreased by Nu 119.3 million, falling from Nu 3,577.4 million in FY 2023/24 to Nu 3,458.1 million in FY 2024/25.
The decline was mainly due to a reduction in demand and time deposits maintained with commercial banks, which form a significant portion of non-bank liquidity reserves.
The SLR for NBFIs declined from 15% to 13.5% during the same period.
Despite the decrease, the ratio remains well above the prudential requirement of 10%, indicating that NBFIs also maintain adequate liquidity levels.
Overall, the combined SLR of Bhutan’s financial institutions stood at 23.1% as of June 2025, reflecting a strong liquidity position across the financial sector.
Financial analysts note that the modest decline in liquidity ratios coincides with expanding credit activity and stronger economic recovery.
Higher credit demand from businesses and households has led financial institutions to deploy a greater portion of their liquid resources into productive investments and loans.
“When financial institutions start deploying liquidity into lending, it often indicates improving economic sentiment and higher investment activity,” a financial analyst said.
“This suggests that banks are increasingly supporting economic expansion by financing business operations, infrastructure projects, and household consumption.”
While stronger lending is a positive sign for economic growth, regulators emphasize that maintaining adequate liquidity buffers remains essential for financial stability.
Liquidity ensures that financial institutions can meet unexpected demands for cash, including sudden deposit withdrawals or market disruptions. Adequate liquidity also allows banks to respond quickly to financial shocks, preventing disruptions to the broader financial system.
RMA continues to closely monitor liquidity conditions across financial institutions to ensure that lending growth does not compromise financial stability.
“Liquidity management remains a core pillar of financial sector stability,” the central bank noted in its annual report 2025. “Financial institutions must balance credit expansion with the need to maintain sufficient reserves to safeguard against potential risks.”
The data suggests that Bhutan’s financial sector remains well-capitalized and liquid, providing a strong foundation for supporting economic growth.
The deployment of liquidity into productive lending activities is expected to support investment, business expansion, and job creation in the coming years.
In the meantime, the central bank is expected to maintain close oversight of liquidity conditions to ensure that financial institutions strike a balance between credit expansion and prudent risk management.
“With liquidity levels remaining well above prudential requirements, Bhutan’s financial institutions are well-positioned to support economic growth while maintaining financial stability,” the central bank stated.
Tashi Namgyal
From Thimphu
