Nepali Times
Strictly Business
It's the bank's business



Two weeks ago, Nepal Rastra Bank sent a letter to the commercial banks. It asked the bankers to consider whether there could be provisions for creating smaller gaps between the range of perks and benefits enjoyed by the top bankers and those at the lower end of the hierarchy.

Seeing this as an instance of unwarranted meddling, the bankers responded last Tuesday. Nepal Bankers' Association (NBA), normally a diffident body, sent out a letter basically arguing that as per Nepali laws, the task of determining a bank executive's salary, perks and benefits is something that's best left to the judgment and discretion of her bank's board of directors.

In both a free market and legal sense, the bankers are correct. The job of the Central Bank is to be an umpire that enforces the rules of the game and punishes violators. Its job is not to tell players when, how and which foot they should move in the game. Doing so diminishes its importance, and gets it bogged down in minutiae.

Still, it's arguable that there is a range of wider contextual issues that any banker should consider when thinking about salaries, perks and benefits in the industry.

Friendly boards: Though the Central Bank should be applauded for strengthening the corporate governance of banks, much work remains to be done. At some banks, certain individuals are still both the chairman of the board and the CEO of the company. This arrangement might have served its purpose in earlier times when the banking sector was in its infancy.

In these days of competition and scrutiny, the arrangement simply strikes investors as a hassle-free way for the chairman to reward himself with other people's money. Besides, this also makes it easier for the chairman to stuff the board with his buddies so that all decisions, often made during family BBQs, go as per the chairman/CEO's wishes. Given the reality of these and other widespread questionable corporate governance practices, it takes a bit of chutzpah for some banks to present their boards' decisions as something that's kosher.

The issue of optics: The Nepali media never tires of reporting bankers' jaw-dropping monthly salaries, which range from Rs 500,000 to Rs 1.4 million Ė the latter being comparable to what commercial bankers in major finance centres around the world earn. Put this in the context of the world's 16th poorest country, which has a high rate of unemployment and a very-sympathetic-to-the-Left population, and the optics do not come out well.

The point here is not that the bankers shouldn't be paid highly. It is that given the broader societal context, which envelops all that we do in Nepal, bankers should not complain when non-bankers are bitter about banking salaries. It's no surprise that they want somebody somewhere to do something to tighten the reins. A wise banker would recognise these broader societal trends, and find ways to mitigate the risks they pose Ė perhaps by ramping up credible CSR activities and by recasting their institutions as trustworthy servants of other people's money.

Moreover, given that bankers always complain of losing their good people to other banks all the time and that there's a severe shortage of people at the lower end, it's not a bad idea to re-examine HR policies, especially salary levels, perks and benefits, and see whether some parity could be achieved to retain high performers.

Viewed this way, the Central Bank's letter, though wrong in its intent, could serve as a wake-up call to the banks.

Leapfrogging with phone cash
Join the joyride, PAAVAN MATHEMA

1. who cares

free economy can not be totally free, which is well known, but govt. should try to impose least possible hindrance. ...... some may give example of US banking crisis,,,, but i think it was more due to the negligence of the govt. and crook mind of the management.... if the govt. would had kept an eye on those borrowers who were not paying interest and principle regularly and if their share in the bank's capital was high, govt. should have closed the bank and prevent total collapse.

salaries and benefits should be paid as per the ability of the company and as deserved by the employee. NRB has no business here. but NRB can impose conditions like more than half should be paid only after certain years if the investments he made is not drowned, or can give share which can not he sold before certain years.

those who can bring high profit, who have brought the fortune to the company should be paid in crore. but our problem is, salaries are paid on be basis of lies, dumb decisions and dumbness of the shareholders (promoters).

those individual who have a knowledge, analytical ability regarding market, business environment, consumer psychology are suppose to get banking job cause they are the ones who can predict who and which business will be able to pay back loan and who wont?

real free economy is the only principle that works. and free economy rules not cause it is be best in itself cause it will give an opportunity to the best in the society.

in free economy, ownership keeps changing until the person with the ability gets it. and the right person gets big from the market, he will give big to the society, the country and the whole world. this is how free economy rules.

some commies have started to criticize free economy using US crisis. ... but those idiots do not understand that US crisis is the example that proves free economy is the best.... why? idiots think communism/socialism develops equality but that is not true - were ussr and cuba/n korea equal,, definitely no and it will never raise the level of the third world...... free economy does help to make world equal,and US is the example.... cause US touched the highest point and now its others turn like china, india ......... cause US is developed country their cost of living, cost of operation, cost of production etc are high so which creates environment in countries like china, india, vietnam who have lower cost, to be able to compete with developed world. ......... this is how free economy brings equality. ..... and if countries like nepal follow real free economy we will be able to join them too.

not just the equality, if there would not have been free economy, we would not be seeing products that we have now.


actually, the ideal economy would be 95% capitalism, 5% socialism.

2. Rajan
The NRB better imposed restrictions on the unreasonable charges these foreign and private banks levy on customers just for having a current account. I was shocked to see the kind of charges they imposed on current account holders for the 'privilege' of keeping their cash in their banks. You deposit your money and the balance gets lower every month. How weird?

3. Thurpunsich
You take your money to the bank. The bank lends that money and earns interest income. That's ok.

The bank also charges you a fee for keeping your money in current (checking) account. That NOT ok.

Instead of meddling in the bank's affair about executive salary, Rashtra Bak should work to eliminate current (checking) account fees.

This is the growing trend in many other countries.

4. DG
An unethical company can bypass even the most draconian regulation.A good corporate governance cannot be legislated  through a mere checklist of rules and regulations.Good corporate rulars simplify such rules are easy to follow and easy to communicate. you cannot cheat people with such simple rules..
The dogmas and shibboleths of socialism with central planning created the Hindu rate of growth in India for more than 40 years.
It is now only they have realized that capitalism with integrityis the only way to move forward ,in creating jobs with disposable income and solve the problem of poverty.
Lax oversight by boards make the CEOs omnipotent. Accounts create ways to circumvent rules,reward hungry employees follow illegal orders.
one cannot distribute poverty. one hasto create wealth first. The task of government isto create an environment where one can create wealth and jobs legally.Corporate leaders are the trustee of share-holders. the benefit of growth is to be distributed widely. Swedish model of private ownership of means of production and welfaresystem is good for us. As tax is heavy, no corruption can be tolerated nor lavish misuse by the leadersof government or industries. Austirity and judicious expenditure only can be allowed.So bussiness leaders also should care to generate public trust  and remain trust worthy.
Focus on creation of wealth by entrepreneurship and redistribute a part by philanthropy; look at Bill-Milanda Gates, Warren Buffet, GD Birla , etcs as role models.

5. Ramchandar
Liberal economy is wellcome but regulation is of utmost important as it involves the money of general public, mostly of lower strata of people. These thugs are embezzling the money and roaming around the world clear air. As an example, Nepal Development Bank case can be high lighted. In USA , CEO takes lot of sallary but many of them are behind the bars for flouting the rules. Here they have been given free hand to loot the people.

6. JavaBeans


This is nothing new though. The salary spread between an executive and an average employee has been argued since the industrial revolution. And the answer has always been the same. In a true free market society the salary of any one individual should be determined by the marketplace - so long as the laws are not broken.

I think what is not prevalent in Nepal is shareholder activism, as you would see in the western world. If a CEO is paid millions of rupees let the board and the shareholders of the bank decide if the CEO is worth the money. Rewards for high achievers and disciplinary actions for under performance should be a key objective in how an employee should be compensated. And whether this is the subject of discussion during their annual performance reviews would be of interest to the general public.

Feel free to agree/argue/refute: pradhan @


(11 JAN 2013 - 17 JAN 2013)