The government will work with the Royal Monetary Authority (RMA) to review the additional margins that banks charge on loans, instead of imposing a blanket ceiling on lending rates, as it seeks to make credit more affordable for small and medium enterprises (SMEs) and private sector businesses.
Finance Minister Lyonpo Lekey Dorji said the cost of credit remains a concern for businesses that depend on bank financing to invest, expand operations and create employment.
The government’s approach will focus on improving transparency in lending charges, encouraging competition among banks and ensuring that reductions in banks’ operating costs are reflected in the interest rates paid by borrowers.
“The government recognises the concern. The cost of credit is an important issue, particularly for SMEs and private sector businesses that depend on affordable financing for investment, expansion and job creation,” the finance minister said.
The latest available figures show that Bhutan’s average lending rate stood at 9.38 percent in December 2025, while the average deposit rate was 5.10 percent, leaving a difference of 4.28 percentage points.
The figures are lower than the 6.45-percentage-point gap cited in a question raised during last week’s monthly Meet-the-Press session.
According to the Ministry of Finance, the gap between lending and deposit rates has narrowed over the years. The average lending rate declined from 13.33 percent in August 2016 to 9.38 percent in December 2025, while the difference between lending and deposit rates fell from 8.30 to 4.28 percentage points over the same period.
Despite the decline, borrowing costs remain an important consideration for businesses, particularly smaller enterprises that may have limited access to alternative sources of financing.
However, the government does not intend to impose a uniform ceiling on bank lending rates. The finance ministry said such a measure could prevent banks from adequately accounting for differences in borrowers’ creditworthiness and loan risks. It could also affect credit availability and potentially undermine financial sector stability.
Instead, the government plans to address the factors contributing to borrowing costs and strengthen the mechanisms through which banks determine their lending rates.
One key measure is the revision of the Minimum Lending Rate (MLR), the regulatory benchmark that establishes a floor for lending rates. The RMA has revised its calculation to better reflect the actual costs banks incur when providing loans.
The changes include adjustments to how banks account for the cost of maintaining funds with the central bank and restricting the operating costs included in the calculation to those directly related to lending.
Following the revisions, the single MLR declined from 6.11 percent in June 2025 to 5.72 percent in December 2025.
However, a reduction in the MLR does not automatically translate into lower interest rates for all borrowers. Banks can add margins to the regulatory benchmark, taking into account their lending strategies, business objectives and assessments of credit risk.
The government has indicated that these additional margins will be reviewed with the RMA to ensure that they remain reasonable, transparent and consistent with competitive lending practices.
The review is intended to examine how banks determine their final lending rates and whether borrowers are benefiting from changes in the regulatory framework and the cost of providing credit.
Another measure highlighted by the government is the risk-based lending assessment system introduced by the RMA in April 2026.
Under the system, banks are expected to assess the likelihood of borrowers defaulting and the potential losses they could incur if loans are not repaid. This approach is intended to improve the assessment of credit risk rather than relying primarily on historical loan defaults.
The government expects the system to help banks price loans more accurately, allowing interest rates to reflect the risk profile of individual borrowers.
However, the impact may take time to become evident. According to the government, banks had already established their annual lending rates and profitability targets when the new system was introduced.
For SMEs and other private businesses, the key question is whether these measures will translate into lower borrowing costs and improved access to finance.
Businesses rely on bank loans to purchase equipment, expand production, manage cash flow and invest in new opportunities. High interest rates can increase repayment obligations, reduce profit margins and discourage investment, particularly among smaller enterprises with limited financial resources.
The government said it would continue working with the RMA to promote competition, improve transparency in lending charges and reduce unnecessary costs within the banking system.
Sherab Dorji, Thimphu
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