Nepali Times
"Things are not as bad as they seem."

Is survival possible with the economy in freefall and banks mushrooming everywhere?
You are right, when we launched Kumari Bank Limited two years ago the economy was not doing too well and the banking sector was already overcrowded. Tourism, garments, trade with India, which formed the bulk of trade activities were slipping. We had to strategise, so we chose a sector untapped by the commercial banks: retail and individual banking. We were also the first to introduce housing and car loans. Other banks followed. That strategy paid off. In two years our lending portfolio stands at Rs 2.3 billion and our deposit portfolio is Rs 2.7 billion. All this from sectors that did not exist before. This July, we recorded an operating profit of Rs 52 million. Just goes to show: if you have something innovative to offer, your bank will succeed even in a saturated market.

How about competition?
It is a very competitive market, and that is reflected in interest rates that are going down. Another area where it's very apparent is in advertising. Almost every bank today has to advertise its product range, something that never happened a few years ago. The good thing about competition is that quality improves, and customers benefit.

But is there enough money in the market to go around?
About eight percent of Nepalis are middle class, that is two million people with an income of more than Rs 30,000 per month. If Kumari Bank Limited serves just 20,000 middle class depositors, we can make it. But we are not limiting ourselves to this strata: we want to extend our reach to the grassroots, the national mainstream. We want to be the bank that caters to the rural population as well, which is why we open accounts with a minimum deposit of Rs 1,000. We recently did a seminar for small and medium entrepreneurs because we believe the country benefits only if the small entrepreneurs are developed.

Why, what's the connection?
When you look into the GDP of any country, you will find that SMEs make up more than 60 percent. Here in Nepal we do not have a structured economy. People are still intimidated to walk into a bank and open an account. This is why we decided to take the bank to the people instead, and educate them about banking and also about the different projects. That way, the GDP grows and so does the economy. In developing sectors, financial institutions have to take the lead. Then there is a chain affect.

How can the banking sector do well when other industries are floundering?
Our economy is unstructured and records are not maintained as they should be. But as far as banks are concerned, there is transparency because Nepal Rastra Bank (NRB) monitors our books. There isn't any corresponding agency to monitor private industries and companies. No one goes through their records, so something else is usually going on underneath. If we were really a structured economy we would have collapsed with the downward trend we saw in the last few years. Hotels being the exception. In general, the economy is not in as bad a shape as has been portrayed. Also, we are buoyed by remittances from Nepalis overseas. Lately, the boom in the housing sector has also had a multiplier effect.

How well does the central bank regulate private banks?
There has to be a very good control mechanism in place because if one bank fails everyone else does too and public confidence plunges. This is why we need a public authority that really knows the job. We have a very positive experience with the central bank. It was easy to follow the rigid guidelines laid out by NRB because our internal guidelines are even more severe.

How rampant is insider trading?
It is quite possible, which is why a system should be instated to detect such cases early. In a financial transaction, if the integrity of the staff is not very clear it can be a mess. A customer and staff within a bank can collaborate to make underhand deals. Those are hazards we face. One mechanism we can employ is rotating staff within the organisation. Similarly, NRB should send inspectors to monitor different banks.

But the Rastra Bank is short on technocrats.
That is a pertinent point. They have become serious about regulation only in the last two years. It's a learning process. Had they done it earlier, Nepal Bank Limited and Rastriya Banijya Bank would not have been at the point they find themselves now. Although they have failed to demonstrate the kind of growth they could have, they are doing their job.

Has your bank found the calibre of human resource?
The pool of good technical staff was limited. So, as a new bank, we had to resort to hiring technical staff who already had experience working in other banks. But at the grassroots level, we trained fresh recruits. The onus for each bank is to develop its own manpower and retain them.

There seems to be plenty of liquidity in the market. Why isn't Kumari Bank Limited rushing to fund big, national-level projects?
While we may have enough liquidity, it hasn't been gainfully used. It is up to the government to involve us, the private sector, in their projects. An example of such an enterprise is the government issued national saving bonds. A typical bond has nearly eight percent interest against the five percent that loan banks charge. If the government lent directly from the individuals or banks, they can borrow at five percent. The government must step out from its old roles and encourage our participation in national level projects, which will bring about healthy competition and transparency too.

There are a lot of white elephant projects around.
Banks have to be very careful with investment decisions. There are businesses that look wonderful now but a few years down the line, things could change. When a bank is making a lending decision, a liquidation analysis is very important as a measure for recovery. If that is properly done, the bank is reasonably secure. If the project is unable to repay the loan, and if there is no siphoning of funds, then the bank should be able to give the business a working plan to see if it can be revived. Money should be generated through legitimate bank business. It is not our job to sell properties to recover bad debts.

(11 JAN 2013 - 17 JAN 2013)