Bhutan’s financial sector is celebrating a highly profitable year, yet a stark economic paradox is emerging. While commercial banks report soaring deposits, a 19.6 percent surge in after-tax profits, and robust credit growth, the country’s private sector is being suffocated by the stubbornly high cost of borrowing.
Despite the Royal Monetary Authority lowering the Minimum Lending Rate to 5.72 percent in 2025, commercial lending rates remain aggressively high, ranging between 7 and 15 percent. This expensive credit acts as a major barrier to expansion for small and medium enterprises (SMEs), which make up over 95 percent of Bhutan’s industrial sector. Start-ups and rural businesses face stringent collateral demands alongside these high rates, locking them out of vital financing.
Economists warn that this dynamic has created a “two-track economy.” While large, capital-intensive sectors like hydropower expand, small businesses face severe survival risks. The real estate and residential construction sectors—traditionally Bhutan’s main engines for domestic employment—have stalled under the weight of high interest rates. Consequently, landlords are passing the borrowing squeeze onto working-class citizens through higher rents, fueling rental inflation.
Bank officials defend the rates, explaining that they rely heavily on domestic deposits rather than flexible wholesale markets, making it difficult to lower lending rates arbitrarily. They argue that high profits are essential to guarantee financial stability and protect depositors.
Nevertheless, with the private sector expected to drive national economic development, this credit crunch poses a serious threat. Unchecked, it limits local investment, stifles broad-based job creation, and continues to drive Bhutan’s young, working-age population to seek employment opportunities overseas.