Anil Shah is a well-known name in the banking sector of Nepal.
A young, energetic and
dynamic personality, Shah has been in the financial sector for over two decades. Presently, he is driving Mega Bank Nepal Limited as its Chief Executive Officer (CEO), which claims it has been catering banking service from the people at the grassroots level to the prominent business tycoons, with the theme of Halo to Hydro. Shah had started his banking career since 1991 as an assistant level staff at Nepal Grindlays Bank (now Standard Chartered Bank Nepal). He also served at Nabil Bank as General Manager and CEO.The dynamic banker recently talked toLaxman Kafle of The Rising Nepal on the current issues of Nepalese banking sector and overall economy of the country. Excerpts:
How is the present scenario of the banking sector in Nepal?
Financial sector is the heart of the countrys economy. If the body itself is unhealthy, the heart could not operate unhealthy body for a long time. But healthy heart could give life to unhealthy body. We fear whether this heart will also become unhealthy if the body continues to ail for a long time.
Nepalese economy is now in sinking trend. It is not just stagnating but getting narrowed day by day as no new factory and huge project were coming for the past couple of years. All sectors and individuals are in a 'wait and see' situation. They are eagerly watching the ongoing political situation and the upcoming constitution.
The whole economy of the country has suffered badly due to the political instability, power outage, labour disputes and insecurity among others. These have also triggered low economic growth. However, if the government manages these things, the economy of the country will grow immediately.
Similarly, the banking sector has been facing excess liquidity problem. Due to lack of investment resulted by the complex investment climate, the investors are not making any investment. This has also had impacted the banking sector as the deposit is like raw materials and loan as the finished product. A large number of skilled and even unskilled Nepalese are flying abroad seeking better opportunities.
The government and planners should ponder over the issues of managing our available resources promptly in an efficient manner.
Liquidity in the commercial banks has grown up significantly and still the banks are unable to mobilize the deposit. What are the reasons?
Political instability is what has affected the disbursement of loan most. There is no certainty of political stability and even the drafting of the new constitution. As such, no body is ready to invest in mega projects because they have to make plan for more than 25 years before investing in any mega project. It is natural people fear to invest when they cannot predict the political situation of next three months.
Besides, power cut, insecurity, labor problems are equally spoiling the investment environment. I think, access to finance is not an issue. No body is ready to invest even when we are ready to provide loan to them. We have heard that some Nepalese are investing aboard due to political insatiability in home.
Do you think the growth in the deposit was mainly due to the change in the saving habit of people?
Saving habit has been developed among the people but the main cause behind the increased deposit was due to remittance. Secondly, the people are looking for the capable institutions to save their money. People are saving their money in the A grade banks after the spread of negative message news about cooperatives and other financial institutions. Growth rate of deposit is normal but abnormal uptake of loan is greatly worrying.
What are the challenges being faced by the Nepalese banking sector?
The greatest challenge of the banking sector is lack of human resources. Qualified and capable people are going abroad seeking jobs. In absence of skilled people, it is difficult to accelerate the countrys economic development. Besides, political instability and insecurity are other challenges faced by the banking sector.
The commercial banks are reducing the interest rate lower than the inflation rate. What do you say about this move of the banks?
Really, the interest rates are less than the inflation which is not good. The interest rate should be higher than the inflation rate. The unhealthy competition and low investment against the flows of deposit have compelled the banks to cut the interest rate. So, balance and natural interest should be fixed for the betterment of the depositors and borrowers. If the market gets expanded as per the flows of deposit, the interest rate will not come down like this.
The banks and financial institutions are undergoing merger. What is your take on this?
Definitely, the merger policy of the central bank is quite positive for the sustainable development of the banking sector. We have to focus on quality rather than quantity. As the number of banks increased significantly despite the sinking market, it has created unhealthy competition among them. Ongoing unhealthy competition will pose a threat to the banking sector. So the initiative taken by the central bank on merger and acquisition is positive to control unhealthy competition among the banks.
Mega Bank is not searching merger, but if some capable bank proposes for merger we dont ignore the proposal. We will go for merger for a leapfrog move. The Mega Bank is looking for the best bank to expand the banking services rather than increasing the capital.
There are many BFIs. Some of them are facing trouble in sustaining them. What do you think are the proper ways to ensure the sustainability of the BFIs?
The NRB has taken a strong move to strengthen the capacity of the banking sector by controlling the mushrooming growth of banks. In my view, the recent strong policy introduced by the central bank is good to control the unhealthy competition. Sustainability of the banks depends on individual and management team which are driving the bank. The luxurious and attractive buildings do not ensure success of any bank. We dont believe that the new bank could not sustain. If the experienced and capable human resources are in the bank, they could operate effectively.
The government has issued directives to the banks to increase their portfolio in agriculture, tourism and energy to 20 per cent by 2014. How could the banks succeed to invest as per the government direction?
Why they cannot. The government should promulgate constitution we will invest 40 per cent not only 20 per cent in the maintained sector. But the banking sector could not invest alone, the security, constitution and investment friendly environment are prerequisites for this. We have to invest in hydro, tourism, and agriculture and other potential sectors. All youth are going abroad and all farm lands have been left barren, so how we can invest in the agriculture sector.
How is the current financial status of your bank?
Mega Bank is now at a comfortable position. We have strong capital base. The bank succeeded to earn Rs.160 million in the second quarter of the current fiscal year. We also offered 9 per cent cash dividend to the shareholders. The number of customers has reached 150,000. Concentration risk is very low of the bank as we have a huge numbers of small depositors and creditors. Our deposit is around Rs.15 billion and we have lending of Rs.14 billion. We are moving with the view to get recognition as the banker of the people. The share price of our bank is higher compared to other banks which were opened at the same time. We are moving on the right track, but we have to do many things to achieve our goal.
How is the banks investment portfolio?
Around 1,219 promoters from various sectors including professors, bankers, teachers, farmers are involving in the bank. We have maintained inclusiveness from the time of inception. We are focusing on Small and Medium Enterprises (SEMs) and micro finance so that the grass root people will have access to our service. If we succeed to provide loan to the SMEs, it will be a help for the economic development of the country.
Like others, we are in wait and see for new constitution and political stability to accelerate our business even though we are expanding it now.