The Bhutanese Leading the way.
The proposal by the Ministry of Finance, with support from the Asian Development Bank and in consultation with the Royal Monetary Authority, to study the feasibility of an Asset Management Company (AMC) comes at an important juncture for Bhutan’s financial sector.
The latest figures are concerning. NPLs stood at Nu 11.729 billion, or 4.07 percent, in August 2026. If the Nu 15.266 billion in previously charged-off but fully provisioned NPLs is also considered, the figure rises to Nu 26.99 billion, or 8.89 percent. While charged-off loans are not necessarily unrecoverable, they represent money and profits that financial institutions have already had to set aside.
An AMC could offer a way to separate legacy distressed assets from the day-to-day business of banks. Instead of leaving banks to pursue difficult recoveries indefinitely, a specialised entity could acquire selected NPLs at appropriate discounts and focus exclusively on restructuring, legal recovery and asset disposal. Done properly, this could free banks to concentrate on productive lending.
But an AMC is not a magic solution. Bhutan’s financial market, economy and pool of potential buyers are small. If banks have already struggled to sell certain collateral after repeated auctions, an AMC may face exactly the same problem. It could also create moral hazard if banks believe future bad lending will eventually be transferred to another institution.
The design therefore matters more than the label. Bhutan should not simply copy an overseas ‘bad bank’ model. The study should establish whether an AMC would actually produce better recovery than existing mechanisms, what assets should qualify, who should bear losses, how transfers would be priced, and whether it should be temporary or permanent.
The new Debt Recovery Tribunal is another potentially important piece of the solution. Faster and more specialised recovery can complement, and perhaps reduce the need for, a large AMC.
Ultimately, the objective should not merely be to make NPL figures look better. It must be to recover money, strengthen banks, protect depositors and shareholders, improve access to credit and prevent new NPLs from accumulating.
“The idea is to limit the objective of these asset management companies to orderly resolution of stressed assets with graceful exit thereafter.”
— William R. White, Bank for International Settlements