Nepali Times
Economic Sense
Banking on bankers


Even from this far away, the Beed is intrigued that the balance sheets of Nepali banks report good profits and generous dividends for shareholders. What's going on?

Some accuse the banks of window dressing accounts by not taking enough provisions on doubtful loans, but the bankers swear they don't cook the books. Banking plays a big role in ensuring economic activity even at depressing times. The fact that the Nepali economy is at present excessively monetised and banks have little share of the economy pie provides more opportunities. Perhaps, all bankers, together with the "restructured" Rastra Bank need to be more adventurous and venture beyond traditional ways of managing liquidity or monetary policy. A stable foreign exchange rate and a dollar rallying behind other hard currency at present provide the right backdrop for taking some risks.

The banks need to get the liquidity out of their system knowing well that their margins may dwindle a bit in the short term. Lowering of interest rates is important to make money available for consumption or other investment. This would perhaps also lead to lowering of lending rates for the banks. Idle cash and low interest loans makes risk taking possible and perhaps the business community big and small would be happy to take the plunge.
The banking system needs to be able to link up with the securities market to inject some new life to the stock market. Banks should be allowed to establish or promote mutual or pension funds, as such institutional investment can only be able to build a good foundation for the future of the stock market. A country with 23 million people has big potential for consumer-based banking, and there is an incentive for the government from the revenue perspective for transactions to be legal.

When will our governments stop looking at the banks as a cash cow but as a means of expanding the tax net and increasing revenue? Credit cards or debit cards with customer loyalty programs have always provided the surge in channeling the transactions through the banking system. Consumer financing-be it in terms of housing, automobile or appliances routed through credit cards-provide transactions legitimacy. And the side benefit is taxes, and it goes without saying that regulators will have to keep a watchful eye on the goings-on.

Banks also should explore whether together they can help finance larger infrastructure projects, be it hydropower plants or toll roads. These large outlays eases employment problems, and at the same time starts a hub for economic activities.

The time has also come to question why Nepali banks or institutions are not allowed to invest outside the country. Since, there has been no way to control the informal flight of capital, can't there be some pilot investments tried out? If the money in the country is lying idle, why not try invest in other countries and earn money for Nepali institutions? If full disclosure is maintained and dividend is repatriated, why should a Nepali institution or fund not be allowed to invest in a software facility in the Philippines, the United States, or India? Banks could be allowed to float specific funds for such investments.

The idea is to find roles for the banks outside the small boxes that they have been confined to so far. There are many successful examples in other developing countries to learn from. Why not try something different for a change. At least it will be less boring.

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(11 JAN 2013 - 17 JAN 2013)