When the Borrower Finances the Banker

The full numbers

Of the Nu 80 billion at the central bank, approximately Nu 20 billion is the mandatory Cash Reserve Ratio (CRR ~7% of deposits, set by monetary policy). Banks are required to hold this. The remaining Nu 60 billion is excess reserves above the regulatory floor — held voluntarily because deposit growth has outpaced lending. Total sector deposits: Nu 295 billion. Total sector loans: Nu 235 billion. Sector loan-to-deposit ratio: about 80% — but a meaningful fraction of “loans” includes restructured COVID-era deferrals (see paradox #9), so deployed working credit is lower than the headline suggests.

Imagine this

An entrepreneur in Thimphu — let’s say a 32-year-old who returned from a tech job in Sydney — wants to start a fintech business. She has a business plan, a prototype, and a target market of the unbanked diaspora corridor. She approaches her bank for a Nu 5 million working capital loan. The loan officer politely says the bank is “not currently extending credit in that segment.” She tries two more banks. Same answer. She returns to Sydney three months later, joins an Australian fintech, and her business idea dies. Meanwhile, Nu 60 billion sits at the central bank above the regulatory floor — enough to fund 12,000 of her at Nu 5 million each. Both stories are true simultaneously: she can’t get a loan, and the country has more spare capital than it knows what to do with. The problem isn’t a shortage of money. It’s a shortage of credit-assessment infrastructure that lets banks evaluate her kind of business. Bhutanese banks were built for tourism, hotels, retail, and government-related lending. A fintech founder doesn’t fit the underwriting templates.

Where this came from

The Bhutanese banking sector grew up serving a small set of well-understood borrowers: hotels, transport, civil servants, established traders. Credit underwriting evolved around those segments. Newer business categories — tech startups, SMEs, agricultural cooperatives, regional brands — never developed standardised assessment frameworks.

When deposit growth accelerated (especially post-COVID with the remittance surge), banks couldn’t grow their loan books fast enough because the credit-assessment infrastructure didn’t scale. Excess deposits parked at the central bank as the safest holding option.

Why this matters now

The 13th FYP’s Economic Transformation Programme commits Nu 80 billion to private-sector development. The banking sector currently holds Nu 60 billion of un-deployable capital. If credit-assessment infrastructure improved, the country could fund nearly the entire ETP from its own existing deposits, without raising any new capital. Instead, the country is going to borrow externally for ETP while sitting on the equivalent at home.

What it should be

• Healthy banks hold close to the regulatory floor (CRR), not 4x it.
• Excess reflects sector-level + private-sector demand issues — credit assessment, borrower readiness, product gaps, distribution.
• None of these are insurmountable.
• Most are solvable with better tools, training, and data.

How others do it

• India — banks hold ~5% of deposits as excess reserves above the regulatory minimum. The deep credit-scoring infrastructure (CIBIL, account aggregator framework, UPI-linked credit underwriting) allows scaled SME lending.
• Vietnam — ~6% excess reserves. Aggressive deposit deployment into SME, real estate, and infrastructure, sometimes too aggressively (asset quality issues are a concern).
• Nepal — ~7-9% excess reserves. Remittance-driven deposit growth deploys into housing and consumer loans.
• Bangladesh — ~8% excess reserves. Active SME lending channels including specialised banks.
• Bhutan: ~20% excess (after subtracting the mandatory CRR) — 2-3x regional peer norm.

The question we should be sitting with

If the money is in the banks, the banks have deployed it short of the central bank’s requirement, and businesses still say they can’t get loans — where is the breakdown? Is it credit assessment, is it borrower-readiness, is it both? What would change if Bhutan built India’s account-aggregator framework?