Research and Writings

Namgay Rinchen (2019) Capacity Building for Managing the Non-Performing Loans, Bhutan- A case study of the Bhutan Development Bank, Ma. Diss., Pathum Thani: Asian Institute of Technology.

October 3, 2019

Abstract: A serious problem faced by a bank is the inability to recover the loans and advances it has granted to its customers. When these unrecoverable loans, known as non-performing loans (NPLs), become substantially large compared to its loan portfolio, the bank’s stability is under stress. Hence, a concerted attempt has to be made for any bank to keep NPLs at a low level. This is particularly problematic for banks in Bhutan.

The rising NPLs figures will create a systemic risk effect on all the banks operating in a country. Hence, banking regulators are concerned about the high NPL levels in individual banks. In this context, Bhutan Development Bank (BDB) has to take remedial measures to keep its NPLs at a low level.

This project report has attempted to identify the present state of NPLs in BDB and propose measures to keep them at the required low level. In 2013, NPL ratio of BDB had been at par with the other four banks in Bhutan. However, the ratio began to increase and, in 2017 it eventually recorded very high NPL ratio historically, as high as 23%, a ratio with which a sound bank cannot operate. Since it is on the increase continuously, it has become necessary for BDB to take effective action to resolve the issue. In this study, ‘introduction of integrated internal mechanism management system within the organization’ and ‘providing sufficient human resource capacity in the organization for management of employees and the customers are identified as two main measures to address the rising NPL problem particularly in BDB.