## tarea2026039 ## Source details **Canonical URL:** [tarea2026039](https://www.imf.org/-/media/files/publications/tar/2026/english/tarea2026039.pdf) ## Other formats - [Markdown version](/-/media/files/publications/tar/2026/english/tarea2026039.pdf.md) - [Structured JSON version](/-/media/files/publications/tar/2026/english/tarea2026039.pdf.json) --- ### Mission, scope, and engagements - At RMA request, FSSR mission in Thimphu from 26 January to 6 February 2026 (scoping mission October 2025). - Mission led by Parma Bains (MCM) with MCM and STA staff and short‑term experts. - Scope: financial regulation and supervision (banking, NBFIs, digital finance), payment systems oversight and operations, financial safety net and crisis management, systemic risk surveillance, and financial statistics. - 59 meetings during in‑person mission; counterparts included RMA leadership, Ministry of Finance, RAA, three banks, two EMIs, trade associations, consulting firms; scoping contacts with CRA and RSEB. ### Executive diagnostic — structure, vulnerabilities, and trends - Financial sector composition and size (as of November 2025): - Financial sector assets: 162.4 percent of GDP. - Banks: 78 percent of total financial sector assets. - NBFIs: 22 percent of total assets. - Banks extend about Nu 195 billion of total loans. - NBFIs excluding microfinance: Nu 46 billion of total loans. - Microfinance firms: Nu 1 billion of total loans. - Securities market: 18 listed firms; market capitalization Nu 53.3 billion. - Two largest commercial banks: approximately 69 percent of banking sector assets and around 70 percent of loans. - Banking sector indicators and structure: - Six banks (five commercial, one digital). - Concentration: two banks ~60 percent of total loans (and ~69 percent of assets for the two biggest commercial banks). - Return on equity: between 8-10 percent (system). - Net interest margins: around 2.3 percent; average net interest margin for the sector is 3.21 percent for 2024. - Average capital for the sector: 16.4 percent. - Loan composition: housing, hotel and tourism, other commercial loans. - NBFIs and key institutions: - NPPF: established 2000; end‑2025: circa 11,051 pensioners, 69,034 members (circa 13 percent of working age population). NPPF holds 14.4 percent of total financial sector assets and 65.2 percent of NBFI assets; extends 8.2 percent of all gross loans. - Insurers: two insurers (reported) hold 7.5 percent of total financial sector assets and 33.7 percent of total NBFI assets; insurers extend 8.5 percent of gross loans. - MFIs: seven MFIs with four deposit‑taking; deposit‑taking MFIs hold market share below 1 percent of total deposits and approximately Nu 1 billion in total assets. - Systemic vulnerabilities: - NPLs: peaked at 14.6 percent post‑pandemic; reported systemwide NPL ratios around approximately 3 percent (masking due to write‑offs, off‑balance recognition, and forbearance). Tourism/hotel measures remained until end‑December 2025; tourism/hotels loans impacted ~Nu 14 billion (US$150 million), 4 percent of total banking assets. - Deposit concentration: strong competition for deposits, concentrated in few large depositors. - Liquidity: structural excess liquidity; loan to deposit ratio approximately 80 percent; interbank market nascent; RMA has extended unsecured overdrafts for settlement shortfalls. - Digital/crypto: Bhutan is the sixth largest government Bitcoin holder treated as strategic reserve; DK Bank partnerships (Binance Pay) and tokenized product TER; National Digital Identity on Ethereum with circa 70 percent participation; GMC Special Administrative Region with crypto activity and bitcoin mining poses spillover considerations. ### Regulatory and supervisory capacity — high‑level findings - RMA has updated regulations but faces capacity constraints: staff turnover, many supervisors new to banking supervision, limited specialist expertise (insurance, actuarial, crypto). - Data gaps and limited NBFI reporting impede supervision; where data exist they show high NPLs and foreclosed assets in NBFIs. - Prudential framework gaps: - Capital framework: Standardized approach close to Basel I; market risk excluded; Pillar 2/SREP not applied; leverage ratio 5 percent; capital conservation buffer 2.5 percent; minimum Tier 1 ratio 7.5 percent; total capital ratio 12.5 percent. - IRRBB: no framework; maturity mismatches (assets up to 30 years vs deposits 1–5 years). - LCR: phased in from 60 percent in 2026 to 100 percent by 2029. - Supervisory practices: - Transition toward risk‑based supervision with updated CAMELs; onsite exams infrequent and compliance‑focused; recommendation to increase DFRS staff from 16 toward 35 and specialize by sector. - External audit coordination with RAA to provide assurance on provisioning; need for stronger two‑way information sharing. ### Financial safety net and crisis preparedness - No formal ELA framework; unsecured intraday/overnight overdrafts observed in practice. - No Deposit Insurance System in place; legal authority exists under FSA but establishment not prioritized. - Resolution regime: RMA is de facto resolution authority but lacks operationally segregated resolution function, manuals, and statutory clarity aligned with FSB Key Attributes; judicial appeal procedures could constrain resolution actions. - Institutional and coordination weaknesses: potential conflicts among supervisory, ELA, resolution roles; need for MoU with Ministry of Finance and cross‑border MoU with RBI for cooperation and resolution. ### Payment systems — operation, oversight, and risks - RMA operates BIRT (RTGS, BITS, BULK) and Bhutan Financial Switch (BFS) enabling ATM, PoS, QR‑code, P2P transfers; QR‑code standard boosted fast payment adoption with over 40 million transactions in Q3 2025. - Settlement and operational findings: - BFS settlement currently manual — operational risk. - Settlement executed through Payment and Settlement Account under banks’ Current Account; RMA effectively extends unsecured overdrafts exposing it to credit risk. - Oversight gaps: - RMA Oversight Framework designates RMA‑operated systems as subject to oversight but oversight not implemented; oversight team focused on bank supervision of payment services. - Need PFMI training, oversight implementation, operational manuals, and potential reorganization to avoid conflict of interest between operations and oversight. - Cross‑border and scheme developments: - Bilateral agreements with UPI (India) and UnionPay (China) being deployed. - Recommendation to assess fast payment scheme scope, standardize additional aspects (SLAs, UX), incorporate P2P under single scheme, and establish National Payments Forum. ### Systemic risk surveillance and stress testing - Mandate and gaps: - RMA has explicit financial stability mandate and macroprudential powers (CCyB, LCR phased in) but lacks a systemic risk surveillance framework and dedicated Financial Stability Unit. - Surveillance mainly descriptive FSIs and credit aggregates; lacks early‑warning indicators, solvency and liquidity stress test toolkits, contagion/ interconnectedness analysis. - Stress testing recommendations: - Introduce basic solvency stress testing methodology (MT, Priority: Medium). - Introduce a cash flow‑based liquidity stress test as a priority (MT, Priority: High). - Liquidity testing feasible with modest technical requirements; solvency tests to start static then progress to dynamic when capacity allows. - Over time, prepare Financial Stability Report. ### Financial sector statistics — data quality, coverage, and key series - Data systems and coverage: - Centralized data warehouse introduced 2023–2024; basic validation present but advanced checks and analytical summaries absent. - FSIs: quarterly reporting to IMF with latest data Q2 2025; RMA compiles 12 core and 6 additional FSIs for DTs (five commercial banks); exclusions include four deposit‑taking MFIs and a newly licensed digital bank. - MFS: compiled monthly using SRFs (1SR, 2SR, 4SR); coverage includes 6 commercial banks, 3 DMFIs; OFC coverage limited to two insurance corporations and one pension fund; EMIs not included. - IIP/BOP: reporting using BPM6; shortcomings noted (C rating in Data Adequacy Assessment). - GFS: general government financial balance sheet not compiled; Ministry of Finance compiles central government annual data only. - FAS: 2024 submission included 32 of 121 variables; more data on digital financial services needed. - Selected FSI time series (preserve values exactly as reported) - Regulatory capital to risk-weighted assets: 14.9 (2021Q4), 15.7 (2022Q4), 16.0 (2023Q4), 18.0 (2024Q4), 17.1 (2025Q1), 16.3 (2025Q2) - Tier 1 capital to risk-weighted assets: 11.9, 11.9, 11.5, 12.1, 12.0, 11.0 - Tier 1 capital to assets: 8.2, 7.8, 8.4, 7.9, 8.4, 7.9 - Nonperforming loans net of provisions to capital: 2.1, 2.2, -3.1, 3.0, 5.1, 5.0 - Nonperforming loans to total gross loans: 6.7, 3.0, 2.4, 2.2, 3.1, 3.0 - Provisions to nonperforming loans: 94.9, 88.2, 123.2, 74.2, 70.5, 70.8 - Return on assets: 1.0, 1.2, 3.3, 2.4, 0.9, 1.8 - Return on equity: 8.1, 9.8, 25.5, 18.1, 7.3, 14.7 - Interest margin to gross income: 77.8, 74.9, 78.7, 82.3, 85.4, 81.9 - Noninterest expenses to gross income: 55.2, 53.8, 35.2, 41.2, 31.5, 31.5 - Liquid assets to total assets (liquid asset ratio): 30.5, 26.7, 23.3, 26.4, 23.6, 21.2 - Liquid assets to short term liabilities: 69.4, 60.8, 56.7, 56.1, 55.7, 51.0 - Large exposures to capital: 68.7, 71.4, 77.3, 140.8, 104.8, 109.3 - Trading income to total income: 3.5, 5.6, 2.5, 1.5, 2.8, 3.7 - Personnel expenses to noninterest expenses: 45.8, 46.7, 44.5, 47.4, 54.5, 50.8 - Customer deposits to total (noninterbank) loans: 111.5, 108.0, 94.3, 106.8, 94.4, 96.1 - Credit growth to private sector: 6.9, 15.7, 14.8, -23.2, 12.8, 16.7 - OFCs' Assets to Gross Domestic Product: OFCs: 41.2, 37.3, 35.7, 35.3, 31.9, 25.2 - OFCs' Assets to Gross Domestic Product: Insurance Corporations: 16.7, 12.6, 12.3, 12.2, 11.1, 3.4 - OFCs' Assets to Gross Domestic Product: Pension Funds: 24.5, 24.7, 23.4, 23.1, 20.8, 21.7 - OFCs' assets to total financial system assets: total OFCs: 26.6, 24.7, 24.0, 29.1, 23.3, 18.6 - OFCs' assets to total financial system assets: Insurance Corporations: 10.8, 8.3, 8.3, 10.1, 8.1, 2.5 - OFCs' assets to total financial system assets: Pension Funds: 15.8, 16.4, 15.7, 19.0, 15.3, 16.1 - Return on equity (Life insurance & nonlife insurance): 41.0, 12.3, 98.8, 73.3, -0.7, 11.7 - Residential real estate loans to total gross loans: 6.5, 5.8, 5.5, 7.8, 5.7, 5.4 - Commercial real estate loans to total gross loans: 23.1, 25.0, 27.4, 39.1, 27.3, 26.3 ### Key policy recommendations (selected, verbatim as presented) - Banking supervision and prudential reforms: - Strengthen supervision capacity for more effective offsite and onsite examinations. — Timeframe: MT; Priority: Medium; Paragraph 25. - Undertake a comprehensive review of capital adequacy using Basel II. — Timeframe: ST; Priority: High; Paragraph 28. - Targeted supervisory review of asset quality and confirm adequacy of provisions as loan forbearance rolls back and IFRS 9 is adopted. — Timeframe: MT; Priority: High; Paragraph 30. - Implement regulations for market risk and IRRBB with supervisory reporting templates and training. — Timeframe: MT; Priority: High; Paragraphs 33, 36. - Support LCR implementation by calibrating run‑off assumptions and mitigating concentration risk. — Timeframe: MT; Priority: Medium; Paragraph 38. - Review and strengthen the PCA framework. — Timeframe: MT; Priority: Medium; Paragraph 44. - Strengthen operational risk management including ICT risk. — Timeframe: LT; Priority: Medium; Paragraph 49. - NBFIs and digital financial services: - Develop supervisory arrangements in line with best practices and Insurance Core Principles. — Timeframe: MT; Priority: Medium; Paragraph 58. - Develop insurance sector specific regulation, life and non‑life, in line with ICPs; conduct impact assessment. — Timeframe: LT; Priority: Medium; Paragraph 55. - Ensure insurers and NPPF adopt appropriate credit underwriting standards and procedures. — Timeframe: ST; Priority: High; Paragraph 60. - Review supervisory reporting framework to provide meaningful data. — Timeframe: ST; Priority: High; Paragraph 62. - Post‑implementation review of e‑money regulations and implement crypto regulation and supervision. — Timeframe: LT; Priority: Low; Paragraphs 68, 70. - Financial safety net and crisis preparedness: - Establish resolution capabilities subject to adopting a robust resolution framework. — Timeframe: MT; Priority: Medium; Paragraph 75. - Introduce an ELA framework and build operational capability. — Timeframe: MT; Priority: Medium; Paragraph 81. - Establish a Deposit Insurance System and introduce depositor preference. — Timeframe: LT; Priority: Medium; Paragraph 84. - Payment systems: - Require sufficient balances in settlement accounts as condition for settlement. — Timeframe: LT; Priority: Medium; Paragraph 97. - Implement payment system oversight and PFMIs training for all staff involved. — Timeframe: ST; Priority: High; Paragraphs 99, 102. - Assess need to expand fast payment scheme scope and features. — Timeframe: MT; Priority: Medium; Paragraph 108. - Develop capacity‑building on fraud prevention. — Timeframe: LT; Priority: Medium; Paragraph 110. - Develop a multi‑year plan for payment systems and establish a national payments forum. — Timeframe: MT; Priority: Medium; Paragraphs 115, 117. - Systemic risk and stress testing: - Introduce a basic solvency stress testing methodology. — Timeframe: MT; Priority: Medium; Paragraph 125. - Introduce interconnectedness analysis methodology. — Timeframe: LT; Priority: Medium; Paragraph 123. - Introduce a cash flow‑based liquidity stress test. — Timeframe: MT; Priority: High; Paragraph 126. - Financial sector statistics: - Improve coverage and quality of FSIs for commercial banks and NBFIs per 2019 FSIs Guide. — Timeframe: ST; Priority: High; Paragraph 136. - Enhance MFS quality and coverage based on MFSMCG and data warehouse usefulness. — Timeframe: MT; Priority: High; Paragraph 141. - Enhance IIP coverage and quality. — Timeframe: LT; Priority: Medium; Paragraph 144. - Compile general government balance sheet data to improve BSA completeness. — Timeframe: MT; Priority: Medium; Paragraph 148. - Strengthen technical capacities of FSIs, MFS, FAS and BSA compilers. — Timeframe: MT; Priority: Medium; Paragraph 154. ### TA Roadmap (TARM) — priorities by timeframe - Short‑term (ST, <6 months): Capital adequacy review (Basel II), market risk/IRRBB regulations development, PFMIs training and initial payment system oversight setup, STA assistance on FSIs. - Medium‑term (MT, ~18 months): Strengthen offsite/onsite supervision, asset quality reviews, LCR implementation support, ELA framework design, initial resolution planning, liquidity stress testing, expand MFS coverage, develop multi‑year payments plan, establish Payments Forum. - Long‑term (LT, ~36 months): Operationalize resolution and DIS, full insurance regulatory regime and actuarial capacity, advanced solvency stress testing and contagion analysis, comprehensive NBFI supervision, crypto regulatory framework, build technical capacity across statistics. _Implied source: IMF Financial Sector Stability Review mission documents and Annex I (TARM) as summarized in the Preface and Executive Summary._ ### Preface ................................................................................................................ ### Preface ### Mission and Scope - At the request of the Royal Monetary Authority of Bhutan (RMA), an IMF Financial Sector Stability Review (FSSR) mission visited Thimphu and held meetings with Bhutanese authorities between 26 January and 6 February 2026. - The mission was led by Parma Bains of the Monetary and Capital Markets Department (MCM), and included Carlos Brandt (MCM), Fozan Fareed of the Statistics Departments (STA), and short-term MCM experts Nico Di Gabriele, Javier Hamann, Athanasios Paniopoulos, and Christoper Wilson. - The scope of the mission (agreed during a scoping mission in October 2025) comprised: - financial sector regulation and supervision including banking, non-bank financial institutions (NBFIs), and digital financial services; - payment systems oversight and operations; - financial safety net and crisis management; - systemic risk analysis and monitoring; - financial sector statistics. ### Engagements and Stakeholders Met - Meetings with RMA leadership including Ms. Yangchen Tshogyel (Governor) and Ms. Ugyen Choden (Deputy Governor), RMA senior management, RMA technical staff. - Government officials from the Ministry of Finance, Royal Audit Authority (RAA), senior executives from three commercial and state-owned banks, two electronic money issuers, two trade associations, consulting firms. - During the scoping mission, meetings with the Corporate Regulatory Authority (CRA) and the Royal Securities Exchange of Bhutan (RSEB). - Mission acknowledges support from Mr. Phuntsho Namgay, Ms. Deki Rinzin, IMF local economist Mr. Dechen Wangdi, and SARTTAC; benefited from conversations with the World Bank and the Asian Development Bank (ADB). ### Financial Reform and Statistics Modules - The FSSR comprised two modules undertaken during the mission: - financial reform module: regulation and supervision (banking, NBFIs, digital financial services), payment systems oversight and operations, financial safety net and crisis management, systemic risk analysis and monitoring; - financial statistics module: key data gaps hampering financial stability analysis and Bhutan’s statistical reporting to the IMF. ### Executive Summary — Key Diagnostic Points - Structure and composition: - Banking sector: five commercial banks and one digital bank; relatively small and concentrated. - NBFIs include: the national pension fund, two insurers, a reinsurer, two insurance brokers, seven microfinance institutions (MFIs), five private money lenders, a fund management firm, one stock exchange, nine securities brokers, and two telecom providers issuing e-money. A subset of MFIs accept deposits. - Systemic vulnerabilities and trends: - Competition for deposits is strong, especially for larger depositors and institutions. - Accumulation of large non-performing loans (NPLs) immediately before and during the pandemic, and related forbearance measures, create challenges despite official net NPL rates having fallen recently. - Regulatory and supervisory capacity: - RMA updated regulations but capacity constraints have hampered supervisory outcomes. - Need for targeted uplift of prudential regulations for banks, including application of individual bank Minimum Capital Ratios (MCRs) and an annual Supervisory Review and Evaluation Process (SREP) with assessment of Individual Capital Adequacy Assessment Processes (ICAAP). - Staff turnover and inexperience: most supervisors are new to banking supervision. - Limited access to quality data on NBFIs; where available, data indicate high levels of NPLs and foreclosed assets. - Insurance sector lacks adequate sectoral regulations. - Non-bank issued electronic money and crypto markets are small but growing; regulatory and supervisory regimes need development. - Financial safety net and crisis preparedness: - No Deposit Insurance System and no Emergency Liquidity Assistance (ELA) framework currently. - Need to adopt a resolution regime via Financial Services Act (FSA) review, prepare resolution plans for systemic banks, perform resolvability assessments, strengthen Prompt Corrective Actions (PCA) framework, and require recovery plans by banks. - RMA needs in-house crisis management expertise and improved domestic collaboration. - Systemic risk surveillance: - RMA has explicit financial stability mandate and macroprudential powers but lacks a systemic risk surveillance framework. - Current analysis relies on financial ratios and credit aggregates; lacks reliable early warning indicators and stress tests. - Recommendations: broaden reporting variables, strengthen macrofinancial analysis, introduce solvency and liquidity stress tests, with TA conditional on authorities strengthening financial data quality. - Payment systems: - RMA operates retail payment system and RTGS, sets rules/standards for retail payments, promotes interoperability via a national switch, and established a national QR code standard boosting fast payment adoption. - Cross-border initiatives underway with China and India. - Operational gaps: provision of unsecured overdrafts to participating banks exposes RMA to credit risk; RMA-operated systems are not being overseen. - Needs: training on CPMI-IOSCO Principles for Financial Market Infrastructures (PFMIs), fraud prevention in digital payments, enhance fast payment scheme, prepare standalone Act for FMIs and payment schemes, develop multiyear strategic plan for payments, establish a National Payments Forum. - Financial sector statistics: - Monthly Financial Soundness Indicators (FSIs) compiled for banks and NBFIs, but coverage of institutions and indicators is limited. - Monetary and Financial Statistics (MFS) compiled monthly for central bank, Other Depository Corporations (ODCs), and Other Financial Corporations (OFCs), but require improvements in source data quality, granularity, and OFC coverage. - Need to enhance International Investment Position (IIP) data and general government balance sheet coverage for Balance Sheet Analysis. - Compile and disseminate data on access to and usage of digital financial services as part of the Financial Access Survey (FAS). - Data warehouse system introduction is a critical step; additional validation, data quality checks, and analytical capabilities recommended. ### TA Roadmap and Diagnostic Outcome - The mission’s diagnostic supports a Technical Assistance Roadmap (TARM). - Key recommendations summarized in Table 1; comprehensive TA Roadmap provided in Annex I. ### Key Recommendations (selected and verbatim as presented) - Financial Sector Regulation and Supervision: Banking - Strengthen supervision capacity to undertake more effective offsite and onsite examinations to identify risks early. Strengthening execution to enhance the effectiveness of subsequent supervisory reforms. — Timeframe: MT; Priority: Medium; Paragraph 25. - Undertake a comprehensive review of capital adequacy using Basel II to ensure the definitions of capital and the calculation of risk-weighted assets is accurate. — Timeframe: ST; Priority: High; Paragraph 28. - Enhance supervisory data for credit risk analysis, develop credit skills to strengthen loan file assessments and portfolio analysis during onsite inspections. — Timeframe: MT; Priority: Medium; Paragraph 31. - Undertake a targeted supervisory review of asset quality across the system with a view to confirming the adequacy of provisions, especially as loan forbearance measures are rolled back, and banks calculate loan loss provisions using IFRS 9. — Timeframe: MT; Priority: High; Paragraph 30. - Implement regulations for market risk and interest rate risk in the banking book together with supervisory reporting templates, supervision processes and training. — Timeframe: MT; Priority: High; Paragraphs 33, 36. - Support the implementation of the LCR by calibrating run-off assumptions, and measures to mitigate concentration risk in bank funding models. — Timeframe: MT; Priority: Medium; Paragraph 38. - Review and strengthen the PCA framework. — Timeframe: MT; Priority: Medium; Paragraph 44. - Strengthen operational risk management of critical systems and assets by introducing higher standards, including ICT risk. — Timeframe: LT; Priority: Medium; Paragraph 49. - Financial Sector Regulation and Supervision: NBFIs and Digital Financial Services - Develop supervisory arrangements in line with best practices and Insurance Core Principles. — Timeframe: MT; Priority: Medium; Paragraph 58. - Develop insurance sector specific regulation, life and non-life, in line with ICPs while considering the specificities of the market. Conduct an impact assessment prior to adopting any material regulatory changes. — Timeframe: LT; Priority: Medium; Paragraph 55. - Ensure that insurers and the National Pension and Provident Fund (NPPF) adopt appropriate credit underwriting standards and implement effective and efficient procedures. — Timeframe: ST; Priority: High; Paragraph 60. - Review the supervisory reporting framework to ensure it provides meaningful and accurate data to conduct micro and macro prudential supervision. Ensure financial sector entities have capacity to report and the RMA to assess the data. — Timeframe: ST; Priority: High; Paragraph 62. - Conduct a post-implementation review of e-money regulations, and implement regulation and supervision for crypto markets and activities. — Timeframe: LT; Priority: Low; Paragraphs 68, 70. - Financial Safety Net and Crisis Preparedness - Subject to adopting a robust resolution framework, including through legislative amendments, and consistent with international standards and good practices – establish resolution capabilities. — Timeframe: MT; Priority: Medium; Paragraph 75. - Introduce an ELA framework and build up operational capability for ELA provision. — Timeframe: MT; Priority: Medium; Paragraph 81. - Establish a Deposit Insurance System and introduce depositor preference. — Timeframe: LT; Priority: Medium; Paragraph 84. - Payment Systems - Impose sufficient balances in the settlement accounts as a condition for settlement process within the payment systems. — Timeframe: LT; Priority: Medium; Paragraph 97. - Implement payment system oversight activities and develop a comprehensive training program on PFMIs for all staff involved in the operation of payment systems and in the oversight of FMIs. — Timeframe: ST; Priority: High; Paragraphs 99, 102. - Assess the need to expand the scope of the existing fast payment scheme and to incorporate additional rules, standards, features, products, and supporting infrastructures. — Timeframe: MT; Priority: Medium; Paragraph 108. - Develop a comprehensive capacity‑building program on fraud prevention within payment systems and payment schemes. — Timeframe: LT; Priority: Medium; Paragraph 110. - Develop a multi-year plan for payment systems and retail payments following the completion of the strategic policy review. — Timeframe: MT; Priority: Medium; Paragraph 115. - Establish a national payments forum to serve as a formal platform for consultation and coordination on payment‑related matters. — Timeframe: MT; Priority: Medium; Paragraph 117. - Systemic Risk Analysis and Monitoring - Introduce a basic methodology for solvency stress testing. — Timeframe: MT; Priority: Medium; Paragraph 125. - Introduce a basic methodology for interconnectedness analysis. — Timeframe: LT; Priority: Medium; Paragraph 123. - Introduce a cash flow-based liquidity stress test. — Timeframe: MT; Priority: High; Paragraph 126. - Financial Sector Statistics - Improve the coverage and quality of currently compiled Financial Soundness Indicators (FSIs) for commercial banks and NBFIs based on the 2019 FSIs Guide. — Timeframe: ST; Priority: High; Paragraph 136. - Enhance the quality of currently compiled Monetary and Financial Statistics (MFS), expand the coverage of MFS based on the MFSMCG, and enhance the usefulness of the data warehouse system to improve data quality. — Timeframe: MT; Priority: High; Paragraph 141. - Enhance coverage and quality of International Investment Position (IIP) statistics. — Timeframe: LT; Priority: Medium; Paragraph 144. - Improve government finance statistics and compile general government balance sheet data to increase the completeness and usefulness of the BSA matrix. — Timeframe: MT; Priority: Medium; Paragraph 148. - Strengthen the technical capacities of FSIs, MFS, FAS and BSA compilers of RMA staff. — Timeframe: MT; Priority: Medium; Paragraph 154. _Implied source: IMF Financial Sector Stability Review mission documents and Annex I (TARM) as summarized in the Preface and Executive Summary._ ### 1. This report was prepared in the context of the Financial Sector Stability Review (FSSR) ### tarea2026039 - 1. This report was prepared in the context of the Financial Sector Stability Review (FSSR) ### Mission context and scope - Mission: Financial Sector Stability Review (FSSR) mission held meetings in Bhutan from 26 January to 6 February 2026; scoping mission with the Royal Monetary Authority (RMA) in October 2025. - Purpose: Broad diagnostic of key segments of the financial system and proposal of a Technical Assistance Roadmap (TARM) to address oversight gaps. - Topics covered: financial sector regulation and supervision (banking, non-bank financial institutions, digital financial services), payment systems oversight and operations, financial safety net and crisis management, systemic risk analysis and monitoring, and financial sector statistics. ### Diagnostic approach and standards - Guidance and benchmarks used: Basel Committee on Banking Supervision (BCBS), International Association of Insurance Supervisors (IAIS), Committee on Payments and Financial Market Infrastructures (CPMI), International Organization of Securities Commissions (IOSCO), Financial Stability Board (FSB), International Association of Deposit Insurers (IADI). - Additional reliance: IMF manuals and methodologies and latest international standards for financial sector statistics. - Tailoring: Standards and guidance were tailored to the specific circumstances in Bhutan. ### Stakeholder engagement - Meetings: 59 separate meetings during the in-person mission across public and private sector entities. - Counterparts met: multiple departments and teams within the RMA; Ministry of Finance; Royal Audit Authority (RAA); three commercial and state-owned banks; two NBFIs that conduct lending activities; two telecom operators that conduct e-money activities; two trade associations; consulting firms; an investment management firm. - Scoping-mission engagements: Corporate Regulatory Authority (CRA) and Royal Securities Exchange of Bhutan (RSEB). ### Overview of the financial sector — key findings and statistics - Macroeconomic context: - Real GDP growth: 7.7 and 9.6 percent in the first two quarters of 2025. - Headline inflation: increased slightly to 4 percent driven by food inflation. - Medium-term outlook: positive (rising hydropower generation and capital spending); risks tilted to the downside (delays on hydropower projects, global slowdown, declines in crypto asset values, fuel-price increases, climate-related shocks). - Non-performing loans (NPLs): - NPLs peaked at 14.6 percent right after the pandemic. - Reported system-wide NPL ratios around approximately 3 percent (masked by write-offs and off-balance-sheet recognition and regulatory measures for tourism and hotel sectors). - Measures for tourism and hotel sector remained in place until end-December 2025. - Financial sector size and composition (as of November 2025): - Financial sector assets: 162.4 percent of GDP. - Banks: account for 78 percent of total financial sector assets. - NBFIs: about 22 percent of total assets. - Banking sector loans: banks extend about Nu 195 billion of total loans. - NBFIs excluding microfinance: extend about Nu 46 billion of total loans. - Microfinance firms: extend Nu 1 billion of total loans. - Securities market: 18 listed firms with combined market capitalization of Nu 53.3 billion. - Two biggest commercial banks: approximately 69 percent of banking sector’s assets and around 70 percent of banking sector loans. - Banking sector structure and performance: - Number of banks: six (five commercial banks and one digital bank). - Concentration: two banks have a combined market share of approximately 60 percent of total loans. - Return on equity for the system: between 8-10 percent. - Net interest margins: around 2.3 percent; average net interest margin for the sector is 3.21 percent for 2024. - Average capital for the sector: 16.4 percent (mostly higher quality capital such as shares and retained earnings). - Loan composition: main sectors—housing, hotel and tourism, and other commercial loans. - NBFIs, pension fund and insurers: - NPPF (National Pension and Provident Fund): - Established in 2000. - As of end 2025: paid benefits to circa 11,051 pensioners and had 69,034 members (i.e. circa 13 percent of the working age population). - NPPF holds 14.4 percent of total financial sector assets and 65.2 percent of NBFI assets. - NPPF extends 8.2 percent of all gross loans. - Risks: demographic trend and emigration of young Bhutanese overseas; members’ ability to withdraw entire accrued contribution before minimum pensionable service. - Insurers: - Three insurers including a reinsurer; two insurers (explicitly quantified) hold 7.5 percent of total financial sector assets and 33.7 percent of total NBFI assets. - Insurers extend 8.5 percent of gross loans in the financial sector. - Structural difficulties: higher cost of funding than banks, higher gross NPL ratios driven by housing sector, material foreclosed assets often held off-balance sheet. - Microfinance and deposit-taking NBFIs: - Seven MFIs including three that accept deposits (DMFIs). - Four of the seven microfinance providers take deposits with a market share of below 1 percent of total country's deposits and approximately Nu 1 billion in total assets. - Financial sector institutional counts and assets (Table 1, As of November 2025): - Central Bank of Bhutan: 1 institution; Assets size 150,374.44 (In millions of national currency); Percent of Nominal GDP 53.70%. - Commercial Banks: 6 institutions; Assets size 355,021.81; Percent of Nominal GDP 126.79%; Participation in total financial system 77.90%. - Domestically controlled: 5 institutions; Assets size 270,963.89; Percent of Nominal GDP 96.77%; Participation 69.20%. - government owned: 1; Assets size 43,353.63; Percent of Nominal GDP 15.48%; Participation 9.60%. - Foreign controlled: 1; Assets size 39,778.28; Percent of Nominal GDP 14.21%; Participation 8.70%. - Deposit taking microfinance institutions: 4 institutions; Assets size 926.02; Percent of Nominal GDP 0.33%; Participation 0.20%. - Total other depository corporations: 10 institutions; Assets size 355,947.82; Percent of Nominal GDP 127.12%; Participation 78.10%. - Other Financial Corporation total: 29 institutions; Assets size 98,814.46; Percent of Nominal GDP 35.29%; Participation 21.90%. - Overall Total: 39 institutions; Assets size 454,762.28; Percent of Nominal GDP 162.4%; Participation 100.00%. - Note: Nominal GDP is as of 2024. *Total assets of insurance companies include only two companies here and exclude the third one (reinsurer). - Liquidity and market depth: - Banking system exhibits structural excess liquidity with loan to deposit ratio approximately 80 percent. - Deposits concentrated in a few large depositors; public sector has significant shareholding interest. - Interbank market: nascent; high-quality assets mainly government bonds with secondary market not deep or active. - RMA preparedness: unclear ability to repo government bonds in stress; instances of RMA extending unsecured overdrafts to some banks for settlement shortfalls. - Concerns: talk of government-sponsored asset management companies to purchase NPLs from banks. ### Systemic vulnerabilities and risks - NPLs and asset quality monitoring: - Accumulation of large NPLs pre-Covid linked to inadequate bank credit risk management and limited RMA capacity for forward-looking monitoring. - Two factors mask deterioration: accounting write-off of NPLs past due more than 12 months and off-balance-sheet recognition; regulatory measures for tourism and hotel sectors also mask ratios. - Off-balance-sheet exposures and foreclosed assets limit banks’ and insurers’ income generation; capital margins above regulatory minima are thin in some cases. - Concentration and ownership risks: - Deposits concentrated among a few large depositors. - Government ownership in the financial system is significant (direct and indirect shareholding). - Liquidity risks and safety net: - In a stress scenario, potential deposit outflows; alternative liquidity sources unclear. - Need to develop an Emergency Liquidity Assistance (ELA) framework. - Digital and crypto-related risks: - Bhutan is the sixth largest government Bitcoin holder treated as a strategic reserve. - Bitcoin mining operations attract state-owned and private sector companies. - Digital Kidu Bank (DK Bank) partnerships and crypto product distribution: - DK Bank partnered with Binance to enable Binance Pay service. - DK Bank authorized to distribute crypto asset (TER) — an investment product (tokenized gold) purchasable only by Bhutanese nationals; settlement of TER purchases via USD or Bitcoin. - National Digital Identity: Ethereum blockchain based, self-sovereign identity principles, participation rate circa 70 percent; early stage to assess impact on financial inclusion; limited technological literacy could lead to risks. - Gelephu Mindfulness City (GMC) — opportunities and spillovers: - GMC: new Special Administrative Region spanning 2,600 square km at the border with India; operates under Singaporean common law framework; financial service regulations modeled on Abu Dhabi Global Market. - Current crypto asset activity and significant bitcoin mining in GMC. - FSSR focuses recommendations to the RMA reflecting domestic Bhutanese financial sector; mission does not provide recommendations for GMC but considers spillover effects into domestic sector and RMA mandate. ### RMA structure and responsibilities (as of February 2026) - RMA staffing: approximately 200 people across 10 departments, including a regional office. - Department responsibilities: - Department of Financial Regulation and Supervision (DFRS): policy formation, licensing, supervision of banks and NBFIs; compiling and publishing financial soundness indicators. - Department of Payment and Settlement Systems (DPS): policy development, oversight and operation of payment and settlement systems; regulation and supervision of payment service providers. - Department of Technology and Innovation (DTI): information technology, cyber resilience, developing digital reporting infrastructure, operation of regulatory sandbox. - Department of Macroeconomic Research and Statistics: monetary and financial sector statistics. - Department of Financial Intelligence: anti-financial crime supervision and financial intelligence analysis. - Department of Foreign Exchange and Reserve Management: oversight of banks’ exposures in foreign currencies (inter alia). - Observed operational issues: instances where RMA extended unsecured overdrafts to banks unable to meet daily settlement commitments. ### Previous IMF TA and other development partners - IMF Monetary and Capital Markets Department (MCM) and SARTTAC: - Since fiscal year 2023: ten TA projects relevant to financial sector policy covering cyber strategy, fintech, strengthening supervisory capacity, and establishing quantitative framework for setting haircuts on government bonds posted as collateral for monetary policy operations. - Further TA provided in debt markets, internal audit, and development of an interest rate corridor framework. - No Financial Sector Assessment Program (FSAP) has been conducted in Bhutan. - IMF Statistics Department (STA): - Several TA missions over past five years covering financial sector statistics, government finance statistics, external sector, national accounts, and price statistics. - 2023: TA mission on financial soundness indicators (deposit takers and non-bank institutions). - 2022: TA mission on monetary and financial sector statistics. - Since 2022: five TA missions on government finance statistics and one TA on external sector statistics. - Other providers: World Bank and ADB active with current and ongoing projects in banking, securities, and payment sectors. *Prepared in the context of the Financial Sector Stability Review (FSSR).* ### 20. These TA missions have been well received but the capacity to absorb TA and retain ### 20. These TA missions have been well received but the capacity to absorb TA and retain ### TA absorption and institutional knowledge - TA missions have been well received but retaining institutional knowledge is challenging due to high attrition rates. - The RMA has been implementing lessons from TA received but faces difficulty retaining institutional knowledge in the face of high attrition. - Mission aims to structure recommendations and TA activities aligned with improving institutional knowledge, including: - fewer manual processes; - improved documentation; - increased automation to reduce dependencies on a single / small group of staff. - Challenge: limited capacity to absorb TA given a relatively small number of staff, broad mandate, and provision of TA from several agencies. - Mission proposes reducing aggregate amount of TA by: - reducing duplication with other agencies; - prioritizing TA that is most necessary. - Mission actions: conducted a stocktake of existing TA (Annex 2), interacted with other relevant agencies like the World Bank and ADB, and set out a relatively limited number of TA activities focused on closing fundamental gaps to provide a platform for key capabilities to ensure financial sector resiliency. ### Supervisory approach, tools and techniques (DFRS) - Achievements since 2024 include revision and implementation of: - Large Exposure Framework 2025; - Regulations on Non-Performing Loan Management 2025; - amendments to Prudential Regulation 2024; - Corporate Governance 2024; - Prompt Corrective Action Framework 2024. - Transition toward risk-based supervision: revised risk rating methodology (CAMELs) and development of bank institutional profiles. - Operating model proposals: - increase staff capacity from current 16 to an aim of 35; - greater focus on training; - sector specialization to alleviate capacity constraints and improve efficiency. - Capacity constraints and coordination issues: - staff turnover has drained institutional knowledge; most supervisors are relatively new to banking supervision; - overly manual processes limit effectiveness (e.g., extracting risk analytics from RMA’s data warehouse for offsite supervision); - onsite examinations are too infrequent and often focus on compliance-related issues; - responsibility for bank supervision is distributed across RMA and beyond DFRS, creating siloed approaches and limited cooperation with departments such as payments, technology, foreign exchange, and the financial intelligence unit. - Recommended supervisory priorities: - pivot to prioritizing supervisory engagement with greater focus on higher risk and more systemically important banks; - revise capital adequacy regulations, ideally aligned with Basel II, and expand coverage to include market risk; - introduce an annual supervisory review based on banks’ ICAAPs and bank stress testing to validate capital buffers; - automate data extraction and compilation of risk analytics to support offsite supervision; - focus on higher risk and larger banks given concentration in the sector by the two largest banks. - Strengthening supervisory tools to support execution: - routine annual bank risk assessments; - targeted onsite examinations on a risk basis; - standardized internal manuals and work programs; - structured training; - basic automation of offsite dashboards. ### External audit and coordination - Statutory Auditor is appointed by the Royal Audit Authority (RAA); RAA approves audit firms for panel selection by banks. - Going forward, RMA will rely on Statutory Auditor to obtain a level of assurance about the accuracy of a bank’s regulatory provisioning. - Scope to increase coordination between RMA, RAA and the Statutory Auditor via more frequent meetings and two-way information sharing. ### Prudential regulation and capital adequacy - Current capital framework features and issues: - Pillar 1: credit risk main system risk; Standardized approach aligns closely with Basel I (e.g., housing and corporate exposures attract a 100 percent risk-weight); - operational risk: Basic Indicator Approach (BIA) used; - market risk excluded from RWAs calculation; - Pillar 2 risks typically not included; Pillar 2 SREP process not undertaken; - leverage ratio applied: 5 percent; - capital conservation buffer: 2.5 percent; - minimum Tier 1 ratio: 7.5 percent; - total capital ratio: 12.5 percent; - definition of eligible capital contains local categories not consistent with Basel definitions. - Recommendations: - perform comprehensive assessment of capital buffers using Basel II to capture all Pillar 1 and 2 risks; - implement processes for individual bank MCRs and an annual SREP including assessment of a bank’s ICAAP; - capture Pillar 2 risks in capital adequacy assessment. ### Asset quality, provisioning, and credit infrastructure - Headline NPL ratios are low but masked by measures: - banks permitted to transfer charged-off NPLs off-balance sheet, artificially lowering reported NPL ratio; - loan forbearance continued for tourism and hotels sector. - Contextual figures: - current stock of tourism and hotels loans impacted: around Nu 14 billion (US$150 million) which is 4 percent of total banking assets. - With rolling back of loan forbearance: - banks will need to assess loans against RMA’s new NPL Management regulation issued in 2025; - loan loss provisioning will need alignment with IFRS9 replacing RMA’s prescribed provisioning framework. - Infrastructure gaps: - credit decisioning gaps: historically total indebtedness difficult to compute; - public real estate price data not readily available; expert valuation firms absent; - slow collateral realization requiring court intervention; inefficient auction process for immovable collateral. - Recommendation: - conduct targeted supervisory review of asset quality across the system once 2025 NPL regulation and IFRS9 reforms can be fully applied to identify unexpected losses. - Implementation support: - TA and training needed to implement IFRS9 and apply RMA’s new guidelines due to extensive data, modeling expertise and supervisory judgement requirements. ### Credit risk monitoring and supervision practices - Credit risk management framework guidance: RMA’s ‘Risk Management Guideline (2019)’ covering Organizational Structure; Credit Risk Strategies and Policies; Credit Limits and Indicators; Credit Granting; Processes; Credit Risk Monitoring; Remedial and Recovery; Provisioning Process. - Data and analytics challenges: - banks report monthly loan exposure data at individual counterparty level; - challenge to aggregate data to produce flow measures by product, vintage and risk characteristics (e.g., Loan-To-Value, Loan-To-Income). - Onsite examinations sample loan files including large exposures and related party loans. - TA needed to strengthen offsite analysis and onsite examination processes and to integrate new staff into roles requiring deep credit risk understanding. ### Market risk - Market risk regulation and supervisory processes are incomplete: - RMA’s ‘Risk Management Standard Guidelines (2019)’ are high-level; - asset classes include FX, equities, and domestic sovereign and corporate bonds; - DFRS has not traditionally focused on market risk; supervisors view market risk investments as held to maturity; - regulations lack clear trading book vs banking book definitions; - RMA does not receive comprehensive market risk reporting or risk analytics (e.g., Value at Risk, mark-to-market positions). - Absence of Pillar 2 or SREP impedes meaningful assessment of market risk. - Recommendation: - establish market risk regulations and supervisory processes as a priority; - TA to take stock of market risk, support drafting of regulations and risk management standards, develop supervisory guidance, and create reporting templates for offsite analysis and onsite examination training. - intention: capture calculation of regulatory capital for market risk under Pillar 1 and treat IRRBB under Pillar 2. ### Interest Rate Risk in the Banking Book (IRRBB) - IRRBB framework absent and should be immediately addressed. - Characteristics and vulnerabilities: - most banks’ loan exposures are floating rate while liabilities are a mix of fixed and floating; - banks’ deposit tenors between 1 and 5 years, assets extend to 30 years; - maturity mismatch exposes banks to interest rate risk. - Current reporting limitations: - RMA receives monthly maturity profiles and some manual calculations but not banks’ interest rate risk measurement results expressed as threats to economic value and earnings using standardized shocks; - RMA does not assess whether banks’ internal capital measurement systems capture IRRBB adequately; - interest rate sensitivities are not actively monitored; scrutiny of banks’ Asset and Liability Committee minutes is not deep. - Recommendations: - establish regulations and supervisory processes for IRRBB as a short-term priority; - TA to take stock of IRRBB and support drafting of regulations and risk management standards, development of supervisory guidance, reporting templates, and training. ### Liquidity risk and LCR implementation - Qualitative measures and metrics applied: - two stock-based requirements: Statutory Liquidity Ratio (SLR) 20 percent of high-quality assets measured against total liabilities (net of capital); Cash Reserve Ratio (CRR) 8 percent of deposit liabilities with RMA; - RMA performs ‘Cash Flow Gap Analysis’ across time buckets. - Liquidity Coverage Ratio (LCR) implementation: - LCR implementation schedule commences in 2026 at 60 percent and banks should meet 100 percent by 2029. - Funding model vulnerabilities: - banks heavily reliant on deposit liabilities; loan to deposit ratio approximately 80 percent; - alternative sources of funding and liquidity in stress are uncertain; - portfolio of high-quality assets typically domestic sovereign bonds which are not actively traded; - run-off rates for large corporate deposits not accurately modelled; in some banks the largest ten corporate deposits could present a meaningful stress. - Recommendation: - TA to assist smooth LCR implementation, particularly calibration of run-off assumptions, categorization of deposits into ‘stable’ and ‘less stable’, and treatment of non-time deposit liabilities. ### Country and transfer risk - No specific RMA regulations for country and transfer risks. - Banking system features: - limited international lending and investment activities; - banks maintain a predominantly domestic presence and have not established foreign subsidiaries. - FX and limits: - RMA has regulations on foreign exchange activities administered by a department outside DFRS; - limits on FX lending: Nu 20 billion for large banks and Nu 15 billion for small banks. - Management and supervision: - banks typically manage country and transfer risks through credit underwriting and monitoring; - RMA has paid less attention to these risks in onsite/offsite analysis and they are not considered in the composite rating system. *IMF Financial Sector Stability Review | 20* ### 40. A regulatory framework and associated supervisory processes are needed to ensure ### 40. A regulatory framework and associated supervisory processes are needed to ensure ### Country and transfer risk - Finding: Banks’ policies and processes need to adequately consider the identification, measurement, evaluation, monitoring, reporting or mitigation of country and transfer risk. - Finding: The domestic banking system’s exposure to country and transfer risks to date has been de-minimis. - Policy recommendation (medium term priority): Establish a set of regulations and associated supervisory processes for country and transfer risk, especially as the economy develops and foreign direct investment expands as anticipated by the Government’s recently announced Foreign Direct Investment initiative. ### Supervisory early intervention (Prompt Corrective Action - PCA) - Finding: Chapter 12 of the FSA provides the RMA with explicit legal authority to undertake Prompt Corrective Actions (PCA). - Finding: The RMA issued in 2022 the PCA framework, and a Statement of Policy in 2024 for placing a financial institution under PCA. - Finding: Under the framework, the institution is required to submit a remedial action plan within prescribed timelines; implementation is monitored by a task force chaired by the RMA’s Deputy Governor and comprising the General Counsel and any other member deemed required. - Finding: The PCA framework sets clear triggers for corrective measures and describes a clear escalation process. - Limitation: Asset quality is the only area of focus for monitoring, designing, and implementing early intervention measures under the PCA Framework; other risks (increasing liquidity risks, deteriorating capital quality, inadequate pricing of risks, chronic weaknesses in risk management and unsound governance practices) are not currently addressed. - RMA intention: The RMA intends to expand the focus of the framework to include some of these areas. - Timing concern: According to the PCA framework it could take up to 1.5 months after the breach of the relevant risk indicator’s tolerance threshold is first detected for a corrective measure to be activated; this might not be sufficiently swift in a fast-evolving crisis. - Policy recommendations: - Strengthen the PCA framework by expanding coverage to include all areas of potential risks to an institution’s viability. - Set the timeframe for corrective measures in accordance with the nature of the financial distress they are meant to address. - Enhance RMA operational capabilities for prompt corrective action. ### Recovery planning - Finding: There is currently no bank-specific recovery planning. - Standard: The Key Attributes require recovery plans at a minimum for all banks that could be systemically significant or critical if they were to fail. - Status: The RMA has not yet introduced these requirements. - Existing guidance: Pursuant to the FSA, the RMA issued in 2022 guidelines on the Business Continuity Plan (BCP). All financial institutions are required to have in place BCPs that provide adequate safeguards for prevention and reduction of the likelihood of operation disruptions. - Supervision issue: RMA supervision of BCPs appears to be of formalistic nature and is largely reliant on attestation issued by third-party to financial institutions. - Policy recommendation: The RMA should establish recovery planning procedures progressively to all banks subject to proportionality; recovery plans should identify credible options to bolster capital and liquidity and restore financial strength and viability when a bank comes under severe stress to cope with a wide range of scenarios. ### Operational risk and operational resilience - Finding: The Basic Indicator Approach (BIA) for calculating capital introduces simplicity and conservatism, yet there is scope for risk sensitivity to encourage higher standards of risk management. - Detail: The BIA approach uses the average of gross income for the last three years with the alpha factor equal to 15 percent. - Recommendation: Over time, the DFRS could undertake a loss data collection exercise to identify banks that collect granular data and apply robust approaches to risk management and internal control processes. - Finding: Internal loss data and risk and control assessments will help inform the adequacy of operational risk capital; access to external loss data and scenario analysis might offer marginal insights. - Finding: Operational risk management standards are robust, highlighting the need for the three lines of defense and expectations for organizational structure, measurement approaches, contingency planning, outsourced activities, and cyber risk. - Supervisory gaps: - Offsite reporting lacks detail and is backward looking (focused on breaches and event notifications). - Onsite examination processes could be expanded to verify effective implementation of enterprise-wide risk management. - ICT and third-party risks: - Finding: Risks associated with ICT and third-party service providers warrant greater attention as banks undergo digitalization and technology upgrades. - Detail: Most banks operate on-premises technology platforms; upgrades to core banking platforms are underway and one bank utilizes cloud-based services for its core banking. - Recommendation: DFRS should step up focus on operational risk and operational resilience and foster greater collaboration between the DPS, DTI, and the DFRS to integrate ICT risks into the holistic risk rating of banks. ### Institutional arrangements for NBFI oversight - Finding: The RMA is the single regulatory and supervisory authority for the entire NBFI sector. - Sector composition: The sector is dominated by non-bank lenders such as the NPPF and insurance companies. Given a small capital market, a minor role is played by the RSEB. There is one fund management company and nine securities brokers (mostly owned by banks and insurers). MFIs and private lenders have low materiality and limited impact on financial sector stability, as do issuers of e-money. - Crypto assets: Crypto assets are not regulated within Bhutan; banks declare that they block crypto asset transactions including on-ramping into crypto asset service providers, but there is evidence of growing use within the country through peer-to-peer transactions using virtual private networks, and transfers to/from nationals residing outside of Bhutan. - Legal basis: The FSA provides the RMA with legal powers and a mandate over regulation, supervision, and oversight of NBFIs; the FSA entrusts the RMA with supervisory responsibilities also with respect to the NPPF. The Securities Act of Bhutan (2001) establishes the regime for financial instruments and the securities exchange. ### Regulation and supervision of NBFIs - Finding: Many prudential rules for banking apply equally to NBFIs (e.g., Penalty Rules and Regulations (2025), Corporate Governance Rules and Regulation, Prudential Regulations (2024)). - Finding: The RMA has issued sectoral rules (example: Insurance Brokers Regulations (2011)). - Supervisory model: The RMA's supervisory model for NBFIs is centered on governing market access and approving new or revised products; a risk-based supervision approach has not yet been implemented. - Constraints: Supervisory activity is limited to assessment of NBFI sector credit risk in part because of staff shortages and limited technical expertise; data gaps and data quality issues hinder comparative analysis and macro view due to variation in the definition of corporate client across supervised entities. - Insurance-specific issues: - Finding: Requirements for insurance companies are not sufficiently tailored, and certain obligations have been waived. - Detail: The Rules and Regulations for Licensing of Insurance Companies (2018) set out key requirements. The RMA has waived the FSA requirement for insurers to submit returns on insurance operations on a quarterly basis; submission happens only if requested by the RMA. - Concern: The RMA has waived the application of the requirement that only insurers with a combined ratio below 80 percent are eligible to declare dividends, and the rationale is unclear. - Gap: No requirements for handling crisis of insurers other than a vaguely defined asset transfer tool; the RMA is yet to establish a list of empaneled actuaries. Insurance companies hire actuarial experts from abroad, absent local expertise, and it is unclear whether any vetting is conducted by the RMA. - Policy recommendations for insurance: - Develop regulation specific to the insurance sector (life and non-life) in line with best practices and Insurance Core Principles (ICPs) while considering the specificities of the local market. - Develop requirements for all insurers that consider their specificities (e.g., life vs non-life business; legal status) and those of the local market. - Prioritize intervention in ICP 9 (supervisory review and reporting), ICP 10 (preventative measures, corrective measures and sanctions), ICP 12 (exit from the market and resolution), and ICP 13 (reinsurance and other forms of risk transfer). - Conduct an impact assessment prior to adopting any material regulatory changes (including new accounting standards) and consider possibility for a phase-in period. ### Supervisory capacity and scope for insurance and NPPF - Finding: The RMA has insufficient expertise in the insurance sector and has only one officer with relevant qualifications; the team in charge has only three officers. - Finding: There is no evidence the RMA has conducted assessment on market competition or the ability of insurers to take full ownership of product decisions, nor assessment of reputational and legal risk to the authority from product approval given limited internal expertise. - Finding: Supervision of insurers and the NPPF is limited in scope and depth (examination limited to loan portfolio); the reinsurer is not subject to any oversight despite its size. - NPPF governance: The FSA entrusts the RMA with supervisory responsibilities of the NPPF, but the RMA has not issued any regulation for the NPPF, which is governed by Government executive orders; the Ministry of Finance currently supervises the liability side of the NPPF’s operations. - Status: The RMA and the Ministry of Finance have been discussing the possibility for the RMA to be the single supervisor for the NPPF as the FSA would allow. - Policy recommendations: - Develop and implement supervisory arrangements in line with best practices and the ICPs. - Prepare staff for conducting overall assessment of insurance business including the NPPF. - Develop policies, procedures and processes ensuring a holistic supervisory approach for each insurance sector entity and the NPPF. - Ensure the supervisory engagement model is risk-based and proportionate. - Carefully consider pros and cons of concessions, waivers, and exemptions and implications for intermediaries’ compliance and risk culture. ### Credit underwriting, NPLs and foreclosure in NBFIs - Finding: There are gaps in the credit underwriting process of insurers and the NPPF; the high level of gross NPLs and large stock of foreclosed assets by NBFI highlight widespread deficiencies in credit underwriting (including because of insufficient level of automation) and lack of proactiveness in RMA's supervision. - Process gap: Lenders are neither required nor access the CIB after disbursement and this data source is not used for monitoring. Lenders react to deterioration only when past due emerges. - Policy recommendations: - Ensure all NBFI lenders adopt appropriate credit underwriting standards and implement effective and efficient procedures for adequate assessment of borrowers' creditworthiness and monitoring. - Support adoption by NBFI lenders of policies and procedures for credit underwriting and monitoring, including automated procedures for creditworthiness assessment, disbursement, monitoring, and credit collection. - Ensure procedures are proportionate to complexity and scale of business and riskiness of credit exposures. - Require lenders of larger size and/or systemic relevance such as insurers and the NPPF to apply risk management arrangements consistent with their profile. ### Supervisory reporting and data quality - Finding: Gaps in supervisory reporting from both NBFIs and the RMA impair supervision. - Reporting requirements: NBFI lenders must submit monthly returns to the RMA covering their loan portfolio and are required to obtain a credit information report from the CIB at the time of disbursement; lenders must report to the CIB credit granted on a monthly basis. - Specific data gap: Absence of reporting to the RMA for the Loan to Income indicator hinders efficacy of micro and macro prudential supervision. - Operational issue: Evidence that DFSR, mostly because of staff shortages, does not examine supervisory returns sent by MFIs, challenging RMA ability to intervene with corrective actions. - Supervisory credibility risk: Use of enforcement powers against persistent and/or gross misreporting could negatively affect supervisory credibility if such cases are not addressed with appropriate supervisory measures including sanctions. - Policy recommendations: - Review the supervisory reporting framework to ensure it provides meaningful and accurate data for micro and macro prudential supervision. - Ensure financial sector entities have capacity to report and the RMA to assess high quality and comprehensive data. - Assess existing reporting framework to understand limitations (e.g., data gaps), redundancies, inefficiencies, and root causes for limited compliance. - Ensure RMA possesses appropriate technical and human resources for data management and that supervised entities adopt arrangements supporting compliance with reporting obligations. ### Microfinance institutions (MFIs) and private money lenders - Regulatory framework: The RMA issued the Regulations for Microloan Institutions (2014) for MFIs with more than 50 borrowers; the Rules and Regulations for Deposit-Taking Microfinance Institutions (DMFI) (2016) govern entities permitted to gather deposits and extend micro-finance loans and include greater prudential requirements and creation of a credit manual approved by the RMA. The Rules and Regulations for Registered Private Money Lenders (2023) govern persons permitted to lend no more than Nu 500,000 to a single borrower and require registration with the RMA rather than a license. - Supervision fragmentation: Supervisory responsibilities are fragmented—DFRS responsible for supervision of MFIs (including deposit-taking MFIs); Legal Department handles registration requests by private money lenders. - Current supervisory scope: Supervision over MFIs is limited to handling license requests and Fit and Proper assessments. - Status and recommendation: RMA has shown interest in adopting a risk-based supervisory approach for MFIs but timeline and capacity are unclear; RMA would benefit from drawing experience for MFI supervision from other recommendations in this review. ### Regulation and supervision of Digital Financial Services (e-money) - Finding: Some banks issue e-money and the two telecom operators each hold an e-money institution (EMI) license. - Statistics: E-money transactions and volumes are limited (Nu 2.2 billion in 2025 with an average transaction value of Nu 226). The outstanding amount of e-money issued by the two EMIs is currently immaterial to financial sector stability (slightly above Nu 5 million). - Business model: EMI business model is ancillary to main telecom business; e-money issuance yields modest if not negative economic return to them. One EMI noted they are no longer marketing e-money services due to limited take-up; e-money transactions are driven by “bonus offers” marketed from time to time. For telecom operators, e-money provides some cost savings when receiving payments from clients charging their telephone sim card. - Regulation: The E‑Money Issuer Rules and Regulations (2019) define licensing, operational standards, consumer protection, and oversight. Objective is to promote safe, efficient, and inclusive digital payments, especially in remote areas. Non-bank firms such as telecom operators and DFMIs may apply for a license and must comply with capital, governance, and operational standards including secure and reliable IT systems, proper record-keeping, transaction monitoring, and reporting to RMA. *IMF Financial Sector Stability Review | 26–30* ### 67. The RMA is conducting a review of its e-money regulations to ensure they are fit for ### tarea2026039 - 67. The RMA is conducting a review of its e-money regulations to ensure they are fit for ### E‑money regulatory review and supervision - The RMA is conducting a review of its e-money regulations to ensure they are fit for purpose in evolving market conditions. - The review includes: - improving conduct requirements for EMIs; - more clearly setting out requirements on safekeeping and safeguarding customer assets; - improving risk management requirements; - improving requirements on governance frameworks. - Recommendation: The RMA should conduct a post-implementation review of their amended e-money regulations to understand the impact of regulations on markets and consumers. - Rationale and expected benefits: - Proportionate regulation and supervision on EMIs could allow e-money to become a viable alternative to existing digital retail payments. - Better tailored regulatory regime for e-money could support financial inclusion and limit people’s attraction toward unregulated and risky products. - Capacity building and data needs: - The RMA could benefit from additional data gathering and analysis to understand clients’ needs and financial institutions’ strategic interests and capabilities. - Improve the RMA’s capacity to conduct effective supervision of non-bank e-money issuers through the development of supervisory manuals. - As part of this review, the RMA should consider its broader digital strategy across sectors. ### Crypto assets: market developments and regulatory gap - Current status: - There is no regulatory and supervisory framework for crypto assets against a background of growing adoption. - The RMA does not currently have a regulatory or supervisory regime for crypto asset markets and activities. - RMA staff expertise is lacking in this area. - Bhutan was graded as not compliant with recommendation 15 of the FATF on new technologies. - Observed market activity: - A Binance-Pay service launched in Bhutan in May 2025 through DK Bank has seen growing volumes with a peak of Nu 5.1 million in December 2025 (Nu 12.2 million in total in 2025). - Most transactions and volumes are associated with accommodation and transport services (linked to tourism) but 11 percent are peer-to-peer, suggesting domestic interest. - Restrictions exist on banks and financial institutions facilitating on‑ramping to crypto markets, and crypto cannot be used for payments. - Peer-to-peer transactions routing purchases outside of Bhutan have led to growing crypto holdings within the country over which the RMA does not have any data. - Banks do not currently appear to have direct exposures to crypto assets. - Growth of TER, a type of tokenized gold issued by DK Bank, and continuing Bitcoin mining within the GMC, have the potential to increase crypto interest in the country. - Recommendation: The RMA should implement and maintain a regulatory and supervisory framework for crypto assets and services. - Develop and implement measures to improve knowledge related to crypto markets including tokenization. - Technical assistance (TA) is needed to help the RMA assess the local market, identify needs, challenges, and specific features to design a tailored regulatory regime that pursues financial stability, investor protection, and economic growth. - Training on global standards and recommendations as well as the broader crypto market will be useful with the goal of developing a regulatory and supervisory regime in line with global standards and recommendations. ### Financial safety net and crisis preparedness — legal framework and resolution regime - Current legal framework: - The FSA is the primary legislation that provides the legal framework for crisis management and the financial safety net. - The FSA provides the RMA with explicit legal authority to appoint an administrator and initiate insolvency proceedings in respect of licensed financial institutions. - The RMA is de facto the resolution authority in Bhutan, however, it lacks sufficient capacity and a supportive legal and operational framework to carry out bank resolutions. - Chapter 12 of the FSA focuses on liquidation under Bhutan’s Bankruptcy Act; language is very general regarding transfer of business of a failing bank. - Liquidation of systemically important banks or other major banks can risk financial instability. - Importance of an effective resolution regime: - Resolution minimizes financial stability risks by preserving critical functions and ensuring performing assets can be managed as going concerns. - A special resolution regime should provide the RMA with a range of resolution powers and a wide resolution toolkit to act promptly and decisively while minimizing taxpayers’ exposure and ensuring creditors are no worse off than in liquidation. - Judicial constraints: - The RMA’s resolution powers should be exercisable without requiring shareholder or creditor consent and without courts being able to overturn or stay the RMA's decisions. - Currently judicial appeal procedures appear available to shareholders, management, and creditors to constrain or reverse RMA measures taken in good faith. - Institutional setup: - The FSB Key Attributes of Effective Resolution Regimes prescribe an operationally autonomous resolution function. - The DFRS does not conduct resolution planning and is understaffed. - As the DFRS grows and the RMA is vested with a resolution mandate, the resolution function should become an operationally segregated unit. - Recommendations: - Introduce an effective bank resolution regime by reviewing the FSA to assess scope to establish a special resolution regime aligned with the FSB Key Attributes, adjusted to Bhutan’s needs. - Amend the FSA to provide the RMA with a clearly defined mandate for a resolution authority, a range of resolution tools and powers, and legal protection for its current and former officials, staff, and agents. - Develop resolution manuals for operationalization of all available resolution tools, including contingency procedures. - Once staffed and manuals are drafted, develop a resolution training program for capacity building. ### Resolution planning - Current gap: - The Key Attributes require that resolution plans be prepared for all banks that could be systemically significant or critical if they were to fail. The RMA has not yet introduced this requirement. - Recommendations: - Start undertaking resolution planning prioritizing banks that are most systemic. - Obtain statutory authority to remove impediments to effective resolution. - Resolution plans should facilitate: - simplification of group structures; - ensuring adequate loss absorbing capacity; - strengthening servicing agreements and contractual arrangements for critical outsourced functions. - Develop operational capabilities to perform bank resolvability assessments to identify and address impediments to resolution. - Provide instructions to banks on required information submissions for resolution planning and resolvability assessments. ### Emergency Liquidity Assistance (ELA) - Objectives of ELA: - a) mitigate the risk that temporary illiquidity leads to insolvency; - b) avoid wider contagion. - Principle: All banks should be eligible for ELA, not just those predesignated as systemically important. - Current practice and gaps: - The RMA does not have a formal framework for ELA, but liquidity provision is available in practice under a standard overnight liquidity standing facility which can be rolled over. - No clarity on discretionary liquidity assistance aspects including: - eligible entities; - type of collateral that could be accepted; - ability to extend liquidity beyond overnight or short-term facilities; - penalty rates to be charged; - existence of safeguards; - possibility of a government indemnity to protect the RMA from losses; - disclosure of liquidity assistance. - The RMA lacks capabilities to perform forward-looking solvency and viability assessments of liquidity recipients and to value non-standard types of collateral. - Recommendations: - Introduce a formal ELA framework with a clear basis in legislation via amendment of the RMA Act 2010 aligned with global best practices. - Develop operational capacity for ELA provision, tackle potential legal obstacles, and prepare supporting documentation: - public instructions addressing objectives, conditions, and parameters of ELA; - internal guidelines describing task allocation, collateral prioritization, and organizational considerations. ### Depositor protection - Current status: - Bhutan does not have a deposit insurance system (DIS), while there is legal authority to establish one under the FSA. - The RMA, in consultation with the government, is authorized to establish a deposit insurance agency with mandatory membership for all deposit-taking institutions. - Establishment has not been prioritized due to RMA capacity constraints. - No consideration appears to have been given to key elements: legal status, mandate, size, level of autonomy, funding arrangements, coverage level, or timeframe to reimburse depositors quickly. - No provisions in the legal framework for deposit preference and its form, or the determination of eligibility for deposit insurance. - It is uncertain how and to what extent depositors would be reimbursed on a failure; reimbursement would likely require recourse to public funds. - Recommendations: - Establish an operationally independent, well run and funded DIS in line with the IADI core principles. - Introduce depositor preference. - Consider housing the functionally autonomous deposit insurance function at the RMA to administer the deposit insurance fund for synergy benefits. - Design features: - DIS should cover most depositors by number and a reasonable share of deposits in the system by value. - Implement a timebound roadmap to ensure a prompt payout (within seven business days) of insured deposits. - Build a sufficient fund over time through regular ex-ante contributions by all banks, with a public back-up liquidity arrangement from the government. - Preceding establishment of the DIS, prepare a detailed operationalization plan including an effective fiscal backstop and contingency plans to address failures that occur before a DIS is in place. ### Institutional framework, governance, and cooperation - Governance challenges: - The RMA is the central bank and the supervisory and resolution authority in Bhutan, with no staff currently dedicated to resolution. - In resolution situations, the RMA may act as provider of ELA, authority resolving a failed bank, and supervisor of both the failing bank and a potential buyer, creating potential policy conflicts. - Recommendation: Ensure functional separation between supervisory, resolution, ELA, and potentially deposit insurance functions by assigning each to separate organizational units reporting to the RMA’s Board through separate reporting lines. - Crisis preparedness and inter-agency coordination: - Assign a crisis preparedness function formally to an inter-agency committee, particularly involving the RMA and the Ministry of Finance (MoF). - The committee should have clearly specified roles, responsibilities, operating procedures, and meet periodically in normal times to oversee national and agency-specific crisis plans. - Suggestion: establish an MoU between the RMA and the MoF setting out respective responsibilities in responding to banking distress or failure. - RMA needs to develop and maintain crisis management expertise via crisis and resolution manuals, contingency plans, table-top exercises, and simulations. - Cross-border supervision and resolution cooperation: - Druk PNB Bank is the only bank primarily owned by a foreign (Indian) financial institution. - Punjab National Bank and State Bank of India hold a 20 percent equity stake in the Bank of Bhutan. - The RMA participates as a host supervisor in supervisory colleges led by the Reserve Bank of India (RBI) for Indian banking groups with operations in Bhutan; RMA engagement has been minimal to date. - The RMA is not a member of any formal resolution college or crisis management group. - Recognition of foreign resolution actions is based on home-host supervisory coordination, regulatory comparability, and preservation of domestic control; RMA consent and Bhutanese law remain applicable for actions affecting Bhutanese branches or subsidiaries. - Recommendation: conclude an MoU with the RBI focusing on cross-border resolution to address cooperation and information-sharing with emphasis on recovery and resolution planning and crisis management. ### Payment systems — operation and oversight - Role of the RMA: - The RMA operates the two main payment systems for both large‑value and retail transactions. - All six banks have direct access to these systems; EMIs access the systems through indirect arrangements. - Given most interbank transactions are settled through RMA‑operated systems, ensuring safety, operational reliability, and efficiency is essential. - BIRT (Bhutan Interbank Real Time Fund Transfer system): - Comprises three components: RTGS, BITS, and BULK. - RTGS enables immediate transfer of large‑value funds above Nu 1 million. - BITS processes over‑the‑counter interbank fund transfers below Nu 1 million in batch settlement cycles of 30 minutes. - BULK allows a single remitter to transfer funds to multiple beneficiaries simultaneously, commonly used for payroll and mass payments. - Bhutan Financial Switch (BFS): - Functions as the network switch for ATM, Point of Sale (PoS), QR‑code payments, and Peer-to-Peer (P2P) credit transfers. - Enables full interoperability across ATM, PoS, and retail payment channels. - Includes a payment system component responsible for settling transactions that have gone through the network switch, on a T+1 multilateral net basis for each product (ATM, PoS, QR-code payments, and P2P credit transfers). - Organizational responsibilities: - Department of Payment and Settlement Systems (DPS) of the RMA is generally responsible for operation of payment systems. - Within DPS, the Operations Division conducts daily reconciliation and settlement activities. - Department of Technology and Innovation (DTI) provides support for IT infrastructure and technical components and is responsible for ensuring business continuity of RMA‑operated payment systems. - The DPS is responsible for monitoring banks’ compliance with payment‑related requirements set out in the Business Continuity Plan Guidelines, which apply to all financial institutions. *IMF Financial Sector Stability Review | content unit tarea2026039* ### 95. While the settlement process within BIRT is fully automated, the settlement process in the ### tarea2026039 - 95. While the settlement process within BIRT is fully automated, the settlement process in the ### Settlement automation, intraday liquidity, and credit risk - Findings: - The settlement process within BIRT is fully automated; the settlement process in the BFS is currently performed manually by the RMA team, who upload transaction files into the system. - Reliance on manual tasks in such a critical process creates inefficiencies and introduces significant operational risk. - Settlement in the payment systems is executed in the Payment and Settlement Account that banks hold at the RMA for each system, under their Current Account, regardless of whether they have sufficient balances in the Payment and Settlement Account or in the Current Account. - This effectively results in the RMA extending unsecured intraday or overnight overdrafts, exposing it to credit risk without collateral. - Just prohibiting unsecured overdrafts could generate liquidity pressures for banks, as intraday liquidity needs can be substantial, and payment inflows and outflows are often mismatched throughout the day. - Recommendations: - The RMA should consider upgrading the system to implement automated settlement procedures, enabling straight‑through processing (STP) and reducing operational risk. - The RMA must require participants to maintain sufficient balances in their settlement accounts as a condition for the settlement process within the payment systems. - The RMA should consider introducing an intraday credit facility to alleviate temporary mismatches between inflows and outflows and to support more effective intraday liquidity management. - Alternatively, the RMA could allow for collateralized overdraft; both options would require establishment of a collateral framework by the RMA, in line with recommendations of previous TA. ### Oversight of payment systems and organizational implications - Findings: - The payment systems should be overseen by the RMA; however, this function is currently not being performed, as the oversight team remains focused exclusively on supervising banks’ provision of payment services. - The Oversight Framework states that the RMA should adhere to the PFMIs and other applicable international standards and designates the RMA-operated payment systems as subject to oversight, yet they are not currently being overseen. - The RMA's Oversight Framework does not designate the Securities Settlement System (SSS) and the Central Securities Depository (CSD) as subject to oversight, due to the limited scale of the capital market. There are no central counterparties (CCPs) or trade repositories in the country. - Recommendations: - Immediate implementation of payment system oversight activities is recommended. - Oversight of FMIs should be aligned with the RMA Oversight Framework and with the relevant PFMI standards applicable to payment systems. - The DPS should lead the process, including designing the oversight procedures and formalizing them in operational manuals. - The RMA Board should formally notify the DTI that its operational activities in the payment systems will fall under the scope of oversight. - Over time, the RMA should consider establishing clear criteria for determining when the SSS and CSD should fall within the scope of RMA oversight, and implement a monitoring process to track growth of the capital market. - Consider adjustments to organizational structure to address potential conflicts of interest arising from operational and oversight responsibilities currently under the same department (DPS). - Capacity and skills: - The mission identified a need to enhance knowledge of the PFMIs across both the operations and oversight teams. - A comprehensive training program is important for all staff involved in the operation of payment systems and in the oversight of FMIs, including those from the DTI. - The mission identified an insufficient number of staff to effectively implement the oversight function at the RMA; beyond hiring, the RMA could explore transferring supervision of payment services to the supervision department to create economies of scope, subject to high‑level discussion. ### Retail payments, QR-code adoption, and fraud prevention - Findings: - The RMA has established a national standard for QR‑code payments, enabling payments by scanning QR codes issued by any bank, with funds transferred directly from customer accounts. - Together with the implementation of the BFS, the QR‑code standard has significantly enhanced interoperability in retail payments. - QR‑code payments have become the most widely used retail payment instrument in Bhutan, with high adoption across both P2P and P2M transactions, with over 40 million transactions recorded in Q3 2025. - The RMA has implemented bilateral agreements with UPI (India) and UnionPay (China) to enable interoperability with Bhutan’s QR‑code payments; arrangements are being deployed in stages and UPI transaction volumes have increased since the service was launched. - There is room for enhancements: additional aspects of payment transactions could be standardized (SLAs, minimum user‑experience requirements); new products and payment initiation methods could be introduced, including P2P transfers; and branding and marketing guidelines could strengthen adoption. - Recommendations: - The RMA should cover additional aspects in the existing fast payment scheme; enhancements should be developed in close coordination with the financial sector and other stakeholders. - Incorporate the current BIPS P2P credit transfer service under the umbrella of a single payment scheme and introduce improvements such as an alias‑based addressing system to support smoother user experience. - Obtain a comprehensive view of needs across all use cases and introduce new features where appropriate to enhance overall efficiency of Bhutan’s retail payment ecosystem. - Implement a comprehensive capacity‑building program on fraud prevention within payment systems and payment schemes to enable the RMA to assume a leadership role in fraud prevention. - Strengthen coordination and collaboration between the RMA and participants in the payment systems to move toward a robust national anti‑fraud framework. ### Legal framework, strategy, and planning for payment systems - Findings: - The legal framework for payment systems in Bhutan is primarily composed of the RMA Act 2010 and the Payment and Settlement Systems Rules and Regulations 2018. - The RMA is undertaking a feasibility study to develop a draft stand‑alone Payment Systems Act. - The RMA has set strategic policies through “Druk Nguldrel Lamtoen 2030”, a 10‑year Strategic Plan (2021–2030). Payment systems policies fall under Thrust Area 3: “Transforming Payment Systems for the New Digital Age”. - The RMA has made progress implementing several elements of its payment system strategy while discontinuing others; initiatives under Pillar 2 (CBDC preparation) were piloted but subsequently discontinued. - The RMA has initiated a review process of its overarching strategic policies; the payment systems component should be reviewed in close coordination with the DPS. - Recommendations: - In assessing the need for a new stand‑alone Payment Systems Act, the RMA should conduct a comprehensive gap analysis on the current Act, focusing on central bank powers and other sensitive elements needing legal-level attention. - Consider powers over other types of FMIs and payment schemes, and assess need for explicit legal authority to hold settlement accounts for non‑bank institutions (e.g., e‑money providers), and ensure material aspects (e.g., settlement finality and netting arrangements) are adequately covered. - Develop a multi‑year plan for payment systems and retail payments following completion of the strategic policy review; the plan should be a living document with regular updates. - Engage all relevant stakeholders through a structured process for consultation and dialogue; broaden engagement beyond banks and payment service providers to include consumer and business associations. - Establish a national payments forum as a formal platform for consultation and coordination on payment‑related matters. ### Systemic risk monitoring, analysis, and stress testing - Findings: - The RMA has an explicit financial stability mandate in the FSA and the RMA Act and has powers to deploy macroprudential policies to banks and nonbanks; elements of Basel III, notably the countercyclical buffer (CCyB) and the LCR, have been phased in. - The RMA does not have a framework for monitoring systemic risk and assessing desirability of macroprudential measures; there is no dedicated Financial Stability Unit or Macroprudential Division. - Bhutan’s financial markets are shallow; banks fund themselves mainly through deposits, and holdings of marketable securities are almost negligible.10 - Financial surveillance at the RMA is limited to descriptive analysis of financial soundness indicators (FSIs); the RMA does not publish a Financial Stability Report and Annual Report coverage of the financial sector is limited. - Data gaps, IT, and capacity constraints limit the RMA’s capacity to conduct systemic risk analysis: unreliable financial data due to loan classification and provisioning practices, problems with compilation and consolidation, absence of cyclical and cross‑sectional indicators, insufficient staff/time, and lack of technical skills for solvency/liquidity stress tests and contagion analyses. - The RMA does not conduct stress tests systematically; single factor sensitivity tests have been used sporadically, but staff lack tools for solvency or liquidity stress testing and there are no established cooperation forms with DMRES for macro‑financial analysis. - Recommendations: - Develop the infrastructure needed to conduct systemic risk analysis and monitoring as a gradual process constrained by available resources. - Broaden the scope of financial data in regulatory forms and develop a system of early warning indicators and a macroprudential stress testing framework covering both solvency and liquidity. - Broaden the set of variables included in bank reports: collect interest rates by type of loan (to generate proxies of credit spreads), quantitative indicators (e.g., LTV and DSTI ratios at loan origination), and qualitative indicators (loan officer surveys) of lending standards, to be analyzed with credit volume metrics. - Consider extraction of key indicators from the credit registry. - Establish cooperation between DFRS and DMRES for macro‑financial analysis, scenario design, and calibration for macroprudential stress tests. - Build capacity and tools for systematic solvency and liquidity stress testing and for contagion analyses. *IMF Financial Sector Stability Review | Excerpt from tarea2026039* ### 125. A macroprudential solvency stress testing framework should be developed gradually. In ### tarea2026039 - 125. A macroprudential solvency stress testing framework should be developed gradually. ### Macroprudential solvency stress testing framework - In July 2025, the RMA distributed a note describing a macroprudential stress-testing framework: “A Macro Stress Testing Framework for Solvency Assessment, 2025” No. REG-002, Version 1.0. - The document describes the building blocks of a dynamic stress test with financial-real feedback effects, expected to be used both by RMA on top-down tests and the banks for capital planning purposes. - Current capacity constraints: - Neither RMA nor the banks have the technical capacity to conduct dynamic financial-real feedback stress tests. - Technical assistance (TA) recommendations: - TA in this area is recommended. - TA delivery should be contingent on preliminary work by the RMA, particularly preparation of reliable data on probabilities of default. - Given tight resource constraints, initial TA may need to focus on a static model. - Training on a dynamic, multifactor model should be delayed until sufficient in-house technical capacity is developed. - TA on stress testing of insurance and pension funds is recommended over the long term. ### Liquidity stress testing - Priority: - Developing a cash flow-based liquidity stress test should be a priority. - Rationale and context: - Concentration of bank deposits is a source of concern, particularly in the absence of a well-designed mechanism for ELA. - Supervisory intervention on banks with high NPLs is made public, and banks’ only source of liquidity under stress is the use of RMA facilities. - Feasibility: - The technical requirements of a cash flow-based liquidity test are modest. - TA in this area could be delivered without the need for significant pre-conditions. - Monitoring: - Close monitoring of bank liquidity is warranted. ### Financial Stability Report (FSR) - Over the medium term, the RMA should aim to prepare a Financial Stability Report (FSR). - Rationale: - FSRs play an important role as communication and accountability devices for central banks, particularly considering the potentially sensitive impact of macroprudential tools. ### Financial sector statistics: overview - This section presents the status of Bhutan’s compilation and dissemination of key financial sector datasets, including FSIs, MFS, underlying datasets for the BSA, and the FAS. - The RMA developed a centralized data warehouse to support statistical data management since 2023–2024. - Improvements: helped improve data governance, streamline data integration, strengthen consistency and coherence across different financial sector statistical outputs. - Current limitations: basic validation tests and data quality checks in place; system does not yet incorporate advanced validation procedures or generate analytical summaries. ### Financial Soundness Indicators (FSIs) - Guideline: - The 2019 FSIs Guide recommends compiling and disseminating 17 core and 12 additional FSIs for deposit takers (DTs), one core FSI on residential real estate prices, and 23 additional FSIs for other sectors. - Reporting status: - Bhutan has been regularly reporting quarterly FSIs to IMF’s Statistics Department (STA) with the latest available data referring to Q2 2025. - Bhutan migrated to the new FSIs reporting templates in 2023. - Coverage and process: - The RMA compiles FSIs for DTs covering five commercial banks, covering 12 core and 6 additional FSIs as of Q2 2025. - FSI source data from commercial banks (balance sheet, income statement, and supervisory series) are collected monthly. - Commercial banks submit monthly returns to RMA within 15 business days following the end of the reference period via RMA’s data warehouse. - Compilation and dissemination responsibility: DFRS, with two staff members currently involved. - Basis of compilation: - FSIs for DTs are compiled using domestic location (DL) basis. - Recommendation: continue DL basis given current absence of foreign branches/subsidiaries; adopt cross-border and cross-sector consolidation basis (CBCSDI) if DTs operate outside Bhutan or acquire non-bank subsidiaries in future. - Coverage gaps: - Data availability for other deposit takers (ODTs) is limited; RMA currently does not compile FSIs for these entities. - Exclusions: four deposit-taking microfinance institutions and a newly licensed digital bank not yet included in DT FSI compilation. - OFCs compilation has significant gaps: current OFC reporting includes a pension fund and two insurance companies, with only a few basic indicators. - Three insurance corporations supervised by the RMA; only two submit monthly returns. - Reporting forms for insurance corporations are identical to those for banks, so insurance-specific activity is not separately captured. - Disaggregation between life and non-life insurance and performance indicators for non-bank sector are not compiled. - Metadata: - Metadata describing statistical and financial reporting standards applied in the compilation of FSIs dates back to 2012 and requires updating and submission. - Discrepancies exist between FSIs reported by the RMA to the IMF and those published on their website; inconsistencies should be resolved and deviations explained within metadata. - Key improvements recommended: - Expand compilation of core and additional FSIs (e.g., market risk, loan concentration by economic activity, residential real estate prices, liquidity indicators) and include the new digital bank and deposit-taking microfinance institutions. - Expand institutional coverage of non-banks and compile additional indicators, include the third insurance corporation and implement a new data collection form for insurance corporations. - Review and refine data mapping and bridge tables to align with the 2019 FSIs Guide. - Prepare and publish comprehensive metadata, including methodological notes and deviations from international standards. - Enhance data warehouse usability with additional validation and quality checks and strengthen inter-department collaboration (DFRS, Macroeconomic Research and Statistics, technology team). - Build technical capacity for RMA staff via courses offered by STA at IMF headquarters, regional training centers, or online. - Implement recommendations of the 2023 technical assistance mission on FSIs. - Selected FSI time series (preserve values exactly as reported) - Regulatory capital to risk-weighted assets: 14.9 (2021Q4), 15.7 (2022Q4), 16.0 (2023Q4), 18.0 (2024Q4), 17.1 (2025Q1), 16.3 (2025Q2) - Tier 1 capital to risk-weighted assets: 11.9, 11.9, 11.5, 12.1, 12.0, 11.0 - Tier 1 capital to assets: 8.2, 7.8, 8.4, 7.9, 8.4, 7.9 - Nonperforming loans net of provisions to capital: 2.1, 2.2, -3.1, 3.0, 5.1, 5.0 - Nonperforming loans to total gross loans: 6.7, 3.0, 2.4, 2.2, 3.1, 3.0 - Provisions to nonperforming loans: 94.9, 88.2, 123.2, 74.2, 70.5, 70.8 - Return on assets: 1.0, 1.2, 3.3, 2.4, 0.9, 1.8 - Return on equity: 8.1, 9.8, 25.5, 18.1, 7.3, 14.7 - Interest margin to gross income: 77.8, 74.9, 78.7, 82.3, 85.4, 81.9 - Noninterest expenses to gross income: 55.2, 53.8, 35.2, 41.2, 31.5, 31.5 - Liquid assets to total assets (liquid asset ratio): 30.5, 26.7, 23.3, 26.4, 23.6, 21.2 - Liquid assets to short term liabilities: 69.4, 60.8, 56.7, 56.1, 55.7, 51.0 - Large exposures to capital: 68.7, 71.4, 77.3, 140.8, 104.8, 109.3 - Trading income to total income: 3.5, 5.6, 2.5, 1.5, 2.8, 3.7 - Personnel expenses to noninterest expenses: 45.8, 46.7, 44.5, 47.4, 54.5, 50.8 - Customer deposits to total (noninterbank) loans: 111.5, 108.0, 94.3, 106.8, 94.4, 96.1 - Credit growth to private sector: 6.9, 15.7, 14.8, -23.2, 12.8, 16.7 - OFCs' Assets to Gross Domestic Product: OFCs: 41.2, 37.3, 35.7, 35.3, 31.9, 25.2 - OFCs' Assets to Gross Domestic Product: Insurance Corporations: 16.7, 12.6, 12.3, 12.2, 11.1, 3.4 - OFCs' Assets to Gross Domestic Product: Pension Funds: 24.5, 24.7, 23.4, 23.1, 20.8, 21.7 - OFCs' assets to total financial system assets: total OFCs: 26.6, 24.7, 24.0, 29.1, 23.3, 18.6 - OFCs' assets to total financial system assets: Insurance Corporations: 10.8, 8.3, 8.3, 10.1, 8.1, 2.5 - OFCs' assets to total financial system assets: Pension Funds: 15.8, 16.4, 15.7, 19.0, 15.3, 16.1 - Return on equity (Life insurance & nonlife insurance): 41.0, 12.3, 98.8, 73.3, -0.7, 11.7 - Residential real estate loans to total gross loans: 6.5, 5.8, 5.5, 7.8, 5.7, 5.4 - Commercial real estate loans to total gross loans: 23.1, 25.0, 27.4, 39.1, 27.3, 26.3 (Source: RMA and IMF Financial Soundness Indicators Database) ### Monetary and Financial Statistics (MFS) - Compilation and coverage: - RMA compiles MFS data using standardized report forms (SRFs) on monthly basis: central bank (1SR), other depository corporations (2SR), and other financial corporations (4SR). - SRFs are compiled by the Macroeconomic Research and Statistics department and published monthly in the International Financial Statistics (IFS). - Current coverage of ODCs includes 6 commercial banks and 3 deposit taking microfinance institutions. The new digital bank was recently included in the MFS data. - For OFCs, data from two insurance corporations and one pension fund is included. - Coverage gaps and issues: - Coverage of NBFIs remains limited; only two insurance companies and one pension fund included in 4SR. - Exclusions: one insurance company, three non-deposit taking microfinance institutions, and other NBFIs not yet incorporated. - Balance sheet data for insurance companies are limited and based on forms designed for commercial banks. - Two licensed e-money issuers (EMIs)—B-Ngul and e-Teeru—are not included in the MFS data; RMA does not currently collect data from these EMIs. - Mapping and capacity: - Source data mapping to 1SR, 2SR, and 4SR can benefit from review to align with IMF’s 2016 MFSMCG methodology in classifications, valuation, and sectoring. - A virtual TA mission supported data mapping in 2022 prior to the data warehouse launch; most staff involved then have since left. - Current MFS compilation team is relatively new and did not participate in the 2022 TA. - Key improvements recommended: - Expand coverage of institutions in ODCs and OFCs (include third insurance company, two e-money institutions, three non-deposit-taking MFIs). - Review mapping of source data within the data warehouse to ensure alignment with IMF’s 2016 MFSMCG. - Improve reporting forms for insurance companies to capture detailed relevant MFS information. - Strengthen validation and data quality checks in the data warehouse and build technical capacity of RMA staff involved in MFS data compilation. ### International Investment Position (IIP) and Balance of Payments (BOP) - Reporting: - RMA reports annual and quarterly IIP and BOP data to STA for dissemination, compiled based on BPM6 framework. - Assessment and recent TA: - Shortcomings remain as indicated by the “C” rating in the Data Adequacy Assessment (See IMF 2025 Article IV Consultation report). - A STA TA mission took place in March 2025 focusing on errors and omissions, informal trade and crypto assets, and presenting changes in BPM7. - Authorities indicated they are working on improving coverage and data quality and implementing mission recommendations. - Priority improvements: - Strengthen compilation framework for IIP/ESS by improving data sources, expanding survey coverage, and enhancing validation. - Implement recommendations from the 2025 mission. - Encourage participation in ESS training for RMA staff involved in IIP and BOP compilation. ### Government Finance Statistics (GFS) - Current status: - GFS financial balance sheet data are not compiled for the general government level. - Ministry of Finance compiles central government data only, with annual frequency. - Recent TA: - STA provided five TA missions on GFS compilation since 2022; most recent in November 2025. - Priority recommendations: - Implement mission recommendations: strengthen GFS technical working group and expand participation to include RMA and NSB. - Create an output sheet in the public debt file with a breakdown of debt by holder—disaggregated into hydro and non-hydro components—to support compilation of GFS and fully Integrated Financial Balance Sheets. - Broaden institutional coverage to gradually compile comprehensive GFS (including financial balance sheet) for non-financial public corporations. ### Balance Sheet Approach (BSA) - Purpose: - The BSA summarizes exposures of main economic sectors to each other and the rest of the world to identify vulnerabilities from intersectoral financial imbalances. - Data sources: - Primary data sources: MFS (SRF formats), external sector data (IIP), and government sector statistics (financial balance sheet by instrument and counterpart sector). - Remaining data gaps in BSA are filled with NFC and household data, which are challenging to collect and may have quality issues. - Current status: - A partial BSA matrix for Bhutan for end-2024 is provided in Table 3, mostly using MFS data (central bank, ODCs and OFCs). - The BSA table is incomplete due to unavailability of general government balance sheet data and the most recent external sector statistics submitted to the Fund are from 2023. - Partial data for general government, NFCs, households, and IIP were compiled using counterparty information from MFS. - Recommendations: - Improve underlying data (MFS, IIP, GFS) to enhance completeness and usefulness of the BSA matrix. - Provide additional BSA training and improve underlying data to facilitate BSA construction and use as an analytical tool. *Source: Excerpt from IMF Financial Sector Stability Review (tarea2026039) as provided in the content unit.* ### 149. The RMA has been reporting both regular and pilot FAS data to the IMF, but coverage ### 149. The RMA has been reporting both regular and pilot FAS data to the IMF, but coverage remains limited. ### FAS reporting and coverage - The 2024 data submission included 32 of 121 variables. - The 2023 submission included 24 indicators. - Notable reported variables included: - the number of credit/debit cards, - bank accounts, - branches, - ATMs, - mobile and internet banking usage for commercial banks, - among others. ### Findings from the FSSR mission - Additional relevant data exists across different RMA departments. - Enhancing collaboration among RMA departments could improve data coverage. - The mission highlighted the ongoing increase in the uptake of digital financial services in Bhutan, indicating the relevance of expanded data collection on digital channels. ### Recommendations and capacity building - The mission encouraged staff to compile and disseminate data on: - e-wallets, - digital bank, - other relevant financial access and usage variables related to digital financial services. - The mission recommended that staff undertake online FAS training to deepen their understanding of the methodology. ### Key statistics from Table 3. Partial Balance Sheet Approach Matrix with MFS Data (2024, Percent of GDP) - Total (across sectors): 18, 17, 48, 48, 118, 114, 35, 36, 13, 27, 106, 65, 13, 48 - In domestic currency (Total row): 18, 17, 2, 35, 116, 113, 35, 36, 13, 27, 105, 65, 0, -, 290, 292 - In foreign currency (Total row): 0, -, 46, 14, 2, 1, 0, -, -, -, -, 1, -, 13, 48, 62, 62 - Select sector totals and currency splits (as presented): - Government — Total: 2; In domestic currency: 2; In foreign currency: - - Central Bank — Total: 11; In domestic currency: 10; In foreign currency: 0 - Other Depository Corporations — Total: 8; In domestic currency: 8; In foreign currency: - - Other Financial Corporations — Total: -; In domestic currency: -; In foreign currency: - - Nonfinancial Corporations — Total: ...; In domestic currency: ...; In foreign currency: - - Households — Total: ...; In domestic currency: ...; In foreign currency: - - External — Total: -; In domestic currency: -; In foreign currency: - - Sources cited within the table: CB, ODCs, OFCs, IIP, (GFS/MFS estimation) - Note: The table presents a partial balance sheet approach matrix with MFS data and numerous sectoral entries reported as percent of GDP for 2024, including several entries shown as "-" or "..." where data are not presented in the excerpt. *IMF Financial Sector Stability Review | 48* ### Annex I. TA Roadmap (TARM) ### Annex I. TA Roadmap (TARM) ### Overview - Purpose: A TARM to build capacity at the RMA to address risks and vulnerabilities in the financial system and strengthen financial sector resilience over the next three years. - Scope: Integrated TA delivery across all FSSR workstreams, grouping TA activities by workstreams and objectives of MCM’s results-based management (RBM) logframe catalogue. - Timeframe definitions provided: ST (Short-term: less than 6 months), MT (Medium-term: results around 18 months); and LT (Long-term: results around 36 months). ### Financial Sector Regulation and Supervision: Banking - Capacity gap: Supervision approach, tools and techniques - Recommendation: Strengthen supervision capacity to undertake more effective offsite analysis and onsite examinations; greater focus on larger systemic banks; greater use of data. - Expected result: More frequent and intensive onsite examinations and earlier identification and intervention of risks. - TA activity: Strengthen approaches to offsite analysis and onsite examination processes, including supervisory manuals and training. - Timeframe: MT - Priority: Medium - Capacity gap: Capital Adequacy - Recommendation: Undertake a comprehensive review of capital adequacy using Basel II; review capital stack; calculate risk-weighted assets to include market risk and interest rate risk in the banking book. - Expected result: Align bank capital requirements to Basel II standards. - TA activity: Review capital stack and calculate RWAs including market risk and IRRBB. - Timeframe: ST - Priority: High - Capacity gap: Credit Risk - Recommendation: Enhance supervisory data for monitoring credit risk; develop credit skills for loan file assessment and portfolio analysis. - Expected result: More effective offsite analysis to identify emerging credit risks at individual bank and system levels; prepare for onsite examinations. - TA activity: Support supervisory data enhancement and examiner training. - Timeframe: MT - Priority: Medium - Capacity gap: Asset quality and provisioning - Recommendation: Targeted supervisory review of asset quality across the system; confirm adequacy of provisions as loan forbearance rolls back and banks adopt IFRS 9. - Expected result: Greater confidence in asset quality and provisioning accuracy given: (i) loan forbearance roll-back; (ii) RMA’s new NPL guidelines; and (iii) introduction of IFRS9. - TA activity: Support implementation of IFRS9 and application of RMA’s new NPL guidelines. - Timeframe: MT - Priority: High - Capacity gap: Market risk and interest rate risk in the banking book - Recommendation: Implement regulations for market risk and IRRBB, develop supervisory reporting templates, supervision processes and training. - Expected result: Regulatory framework capturing RWAs for market risk and IRRBB; supervision processes to identify and integrate market risks into bank risk profiles. - TA activity: Establish fit-for-purpose regulations and supervisory processes. - Timeframe: ST - Priority: High - Capacity gap: Liquidity risk management - Recommendation: Support implementation of the LCR by calibrating run-off assumptions and measures to mitigate concentration risk in bank funding. - Expected result: Banks can segment deposit liabilities, apply accurate run-off rates under stress, manage concentration risk, and develop alternative funding strategies. - TA activity: Segment deposit liabilities, estimate run-off assumptions, and model LCR under extreme but plausible scenarios. - Timeframe: MT - Priority: Medium - Capacity gap: Incomplete set of supervisory early intervention measures - Recommendation: Review and strengthen the Prompt Corrective Actions (PCA) framework. - Expected result: Increased operational readiness for implementation of corrective actions. - TA activity: Review the expanded PCA framework. - Timeframe: MT - Priority: Medium - Capacity gap: Lack of recovery planning capabilities - Recommendation: Prepare templates and guidance for recovery plans by banks and their review by the RMA. - Expected result: Increased operational readiness for activation of recovery options. - TA activity: Develop templates and guidelines for drafting and supervisory review of recovery plans. - Timeframe: LT - Priority: Low - Capacity gap: Operational risk and operational resilience - Recommendation: Strengthen operational risk management of critical systems and assets, including ICT risks. - Expected result: Banks identify critical assets, systems and services resilient under extreme but plausible scenarios. - TA activity: Enhance operational risk and resilience requirements in line with Basel guidance. - Timeframe: LT - Priority: Medium ### Financial Sector Regulation and Supervision: NBFIs and Digital Financial Services - Capacity gap: Lack of dedicated insurance regulatory framework - Recommendation: Develop insurance-specific regulation (life and non-life) in line with Insurance Core Principles (ICPs), conduct impact assessments, consider phase-in periods. - Expected result: Regulatory and supervisory framework in line with ICPs; ability to conduct impact assessments prior to material changes. - TA activity: Develop policy proposals on supervisory review and reporting (9, 10); recovery and resolution (12, 16); and reinsurance (13). - Timeframe: MT - Priority: Medium - Capacity gap: Lack of policy, procedures, reporting, and expertise for insurance assessment - Recommendation: Develop supervisory arrangements in line with ICPs; prepare staff for holistic assessment including national pension and provident fund. - Expected result: Ability to conduct holistic assessment of insurance sector financial soundness and request remediation or crisis measures. - TA activity: Develop policies, procedures, methodologies, and train staff with focus on actuarial skills and IFRS 17. - Timeframe: LT - Priority: Medium - Capacity gap: Lapses in credit underwriting for NBFI lenders (insurers, NPPF) - Recommendation: Ensure NBFI lenders adopt appropriate credit underwriting standards and monitoring procedures. - Expected result: NBFI lenders implement and maintain sound credit underwriting standards and effective borrower assessment and monitoring. - TA activity: Build policies, processes, and procedures to strengthen NBFI credit processes. - Timeframe: ST - Priority: High - Capacity gap: Lapses in supervisory reporting from NBFIs and RMA - Recommendation: Review supervisory reporting framework to provide meaningful, accurate data for micro and macro prudential supervision. - Expected result: Availability of technical and human resources for adequate data reporting and a data analysis framework encompassing entire NBFI sector. - TA activity: Design and implement a supervisory reporting framework and support adoption by NBFIs and RMA. - Timeframe: ST - Priority: High - Capacity gap: On-going e-money regulation review and supervisory gaps - Recommendation: Post-implementation review of e-money regulations and develop supervisory arrangements in line with best practices. - Expected result: Ability to conduct holistic assessment of payment service entities. - TA activity: Conduct post-implementation review and strengthen supervision of EMIs. - Timeframe: LT - Priority: Low - Capacity gap: Lack of human resources and monitoring for crypto assets - Recommendation: Establish regulatory and supervisory framework for crypto assets and related services in line with global standards; upskill staff. - Expected result: Sufficient human resources with competencies for tokenization and crypto assets; maintained regulatory framework. - TA activity: Design regulatory and supervisory framework on crypto assets. - Timeframe: LT - Priority: Low ### Financial Safety Net and Crisis Preparedness - Capacity gap: Lack of resolution planning capabilities - Recommendation: Adopt a robust resolution framework (including legislative amendments) consistent with international standards and good practices; establish resolution capabilities. - Expected result: Increased operational readiness for resolution planning and action; templates and guidance for resolution plans and resolvability assessments; internal governance for contingency planning. - TA activity: Enhance and operationalize bank resolution framework; review draft resolution manuals, procedures, and methodologies for resolution plans and resolvability assessments developed by RMA. - Timeframe: MT - Priority: Medium - Capacity gap: No ELA framework in place; RMA providing unsecured intraday liquidity - Recommendation: Introduce an ELA framework and build operational capability for ELA provision. - Expected result: Mitigate risk that temporary illiquidity leads to insolvency, avoid contagion and protect RMA from losses. - TA activity: Align ELA framework with international best practices; address operational and legal challenges of ELA provision. - Timeframe: MT - Priority: Medium - Capacity gap: No Deposit Insurance System (DIS) - Recommendation: Establish a DIS and introduce depositor preference. - Expected result: Well-designed DIS that enhances depositor confidence, protects retail depositors, reduces deposit run risk and mitigates contagion. - TA activity: Design and operationalize a DIS aligned with IADI’s Core Principles for Effective Deposit Insurance Systems. - Timeframe: LT - Priority: Medium - Capacity gap: Lack of crisis management expertise - Recommendation: Prepare a national crisis management plan (including Ministry of Finance), undertake table-top exercises and simulations. - Expected result: RMA staff prepared and ready for unexpected events and systemic shocks. - TA activity: Train in crisis management, including crisis simulation exercises (subject to adopting robust resolution and crisis management frameworks). - Timeframe: LT - Priority: Medium ### Payment Systems - Capacity gap: RMA providing unsecured intraday overdrafts - Recommendation: Impose sufficient balances in settlement accounts as condition for settlement; assess need for additional liquidity management mechanisms. - Expected result: Mitigate RMA credit risk and assess need for additional liquidity mechanisms for payment settlement. - TA activity: Support RMA in design choice of settlement requirements; if intraday credit required, support design and implementation. - Timeframe: LT - Priority: Medium - Capacity gap: Oversight of RMA-operated payment systems not performed; need PFMI knowledge - Recommendation: Implement payment system oversight activities and develop training on PFMIs for operation and oversight staff. - Expected result: Oversight function implemented for payment systems. - TA activity: Capacity development on PFMIs and support implementation of oversight function. - Timeframe: ST - Priority: Medium - Capacity gap: Existing payment scheme requires enhancements - Recommendation: Assess need to expand scope of fast payment scheme and incorporate additional rules, standards, features, products, and infrastructure. - Expected result: More interoperability and higher adoption of digital payments. - TA activity: Capacity development on fast payments and support RMA assessment of existing scheme. - Timeframe: MT - Priority: Medium - Capacity gap: Need to enhance knowledge of prevention in digital payments - Recommendation: Develop comprehensive capacity‑building program on fraud prevention within payment systems and schemes. - Expected result: Safer digital payment ecosystem in Bhutan. - TA activity: Capacity development on fraud in digital payments. - Timeframe: LT - Priority: Medium - Capacity gap: National Payments Strategy not updated since 2021; no multi-year plan - Recommendation: Develop a multi-year plan for payment systems and retail payments aligned with strategic policy framework. - Expected result: Implement enhancements in payment systems and retail payments aligned with updated strategy. - TA activity: Support RMA in developing a multi-year plan for payment systems and retail payments. - Timeframe: MT - Priority: Medium - Capacity gap: Absence of a Payments Forum - Recommendation: Establish a national payments forum for consultation and coordination. - Expected result: Promote stakeholder engagement and stronger inputs for RMA decision-making on payments matters. - TA activity: Support RMA in implementing the Payments Forum. - Timeframe: MT - Priority: Medium ### Systemic Risk Analysis and Monitoring - Capacity gap: Lack of forward-looking solvency analysis - Recommendation: Introduce a basic methodology for solvency stress test. - Expected result: Improved understanding of prospective risks to financial stability. - TA activity: Solvency stress test: develop a spreadsheet-based approach to solvency analysis. - Timeframe: MT - Priority: Medium - Capacity gap: Lack of analysis of contagion channels - Recommendation: Introduce basic methodology for interconnectedness analysis. - Expected result: Improved understanding of contagion risks, systemically important institutions, and potential need to designate DSBIs. - TA activity: Contagion analysis: apply standard MCM tool for contagion analysis. - Timeframe: LT - Priority: Medium - Capacity gap: Lack of analysis of sources of liquidity stress - Recommendation: Introduce a cash flow-based liquidity stress test. - Expected result: Improved understanding of prospective liquidity problems and need for idiosyncratic or systemic liquidity provision. - TA activity: Liquidity stress testing: cash flow-based liquidity stress test. - Timeframe: MT - Priority: High - Capacity gap: No stress testing for NBFIs - Recommendation: Introduce a basic methodology for stress testing of NBFIs. - Expected result: Better understanding of NBFI resilience. - TA activity: Solvency stress testing for insurance companies and pension funds. - Timeframe: LT - Priority: Medium ### Financial Sector Statistics - Capacity gap: Weaknesses in Financial Soundness Indicators (FSI) compilation and reporting - Recommendation: Improve quality and expand coverage of FSIs for deposit takers (DTs) and NBFIs in line with 2019 FSIs Guide. - Expected result: Strengthened compilation and dissemination of FSIs, including banks and NBFIs. - TA activity: STA TA to assist in the compilation of FSIs in line with 2019 FSIs Guide. - Timeframe: ST - Priority: High - Capacity gap: Weaknesses in Monetary and Financial Statistics (MFS) compilation and reporting - Recommendation: Improve quality and expand coverage of MFS for EMIs and NBFIs. - Expected result: Strengthened compilation and dissemination of MFS for deposit takers and NBFIs, enhanced usefulness of data warehouse system. - TA activity: STA TA Assistance to improve MFS compilation, particularly for NBFIs. - Timeframe: MT - Priority: High - Capacity gap: Weaknesses in External Sector Statistics (ESS) reporting - Recommendation: Improve quality and coverage of ESS/IIP. - Expected result: Strengthen compilation and dissemination of BOP/IIP. - TA activity: STA TA to assist in improvement of ESS compilation. - Timeframe: LT - Priority: Medium - Capacity gap: Weaknesses in GFS reporting - Recommendation: Compile and disseminate general government balance sheet. - Expected result: Strengthened compilation and dissemination of GFS. - TA activity: STA TA to assist in improvement of GFS compilation. - Timeframe: MT - Priority: Medium - Capacity gap: Lack of technical capacities of FSIs, MFS, FAS and BSA compilers - Recommendation: Further strengthen technical capacities of RMA staff. - Expected result: Enhanced staff capacity through training, especially on compilation methods and developing source data. - TA activity: Capacity building, trainings, and provision of guidance in compilation of FSIs, MFS, FAS and BSA. - Timeframe: MT - Priority: Medium *IMF Financial Sector Stability Review — Annex I. TA Roadmap (TARM).* --- _Source: https://www.imf.org/-/media/files/publications/tar/2026/english/tarea2026039.pdf_