June 11, 2026
THIMPHU – Banks in the country maintain high lending rates and low returns on deposits, which continue to strain businesses, particularly small and medium enterprises, as Bhutan increasingly turns to the private sector to drive economic growth.
To improve access to finance, the Finance Ministry and the Economic and Finance Committee of the National Assembly (NA) will discuss lowering credit lending rates with the Royal Monetary Authority (RMA) after the current parliamentary session.
Deputy Speaker Sangay Khandu directed the issue after Finance Minister Lekey Dorji recommended it in the House yesterday, responding to a query from Member of Parliament for Radhi-Sakteng Tashi Tenzin on whether the government had started reviewing interest rates.
Lyonpo Lekey Dorji said that, on the directive of the government, the RMA, in consultation with financial institutions, is working to rationalise the Minimum Lending Rate (MLR) and expected credit losses to improve access to finance.
“A thorough review of all elements of the MLR will be required,” Lyonpo said, adding that affordable lending rates are essential to improve access to credit, encourage investment, and support business growth.
Lending rates are based on the MLR, which comprises the marginal cost of funds, negative carry on the cash reserve ratio, and operating costs. Commercial spreads, including credit risk, tenor risk, and business strategy premiums, are then added to determine the final rate.
Bhutanese banks are among those with the highest gap between deposit and lending rates in the region. The average credit lending rate is about 11 percent, compared with 4.55 percent on savings deposits, resulting in a spread of around 6.45 percent.
MP Tashi Tenzin said that to support private sector growth, the government has pledged to review interest rates in collaboration with the RMA and financial institutions to ease the credit burden and improve the viability of businesses and projects.
“For instance, rent is very high, which is linked to higher housing loan lending rates. Many spend 35 to 45 percent of their monthly salary on house rent alone,” he said.
The MP also called on the government to use political will to address the issues and improve private sector growth, as pledged. He said Bhutan is also facing serious concerns over non-performing loans, with 2,528 of the 7,082 accounts, about 35 percent, belong to farmers.
“Over the last five years, our banks and financial institutions have also declared substantial profit after tax,” he added.
Lyonpo Lekey Dorji said NPLs can still occur despite low concessionary lending rates, citing the National Credit Guarantee Scheme and Cottage and Small Industry bank loans as examples, which recorded high NPLs even at interest rates of 2 to 4 percent.
“Microfinance institutions maintain a low NPL rate of about 2 percent despite charging lending rates as high as 20 percent,” he said.
According to economic analysis, lowering interest rates reduces borrowing costs, increases spending and investment, and can lead to rising inflation if demand outpaces supply.
Raising rates has the opposite effect, slowing demand and easing inflation, though the effects take time and can be influenced by supply-side shocks.