‘It is only private sector taking the lead to stimulate economy’

Profit of commercial banks went up by a whopping 16.24 per cent in the third quarter of this fiscal year despite the unfavourable economic situation prevailing in the country during the second and third quarters.

Commercial banks generated net profit of Rs 23.78 billion in between mid-July to mid-April as against Rs 20.46 billion in the corresponding period of the previous fiscal.

Profit growth of commercial banks has not retarded despite the slow economic growth in the review period. Pushpa Raj Acharya of The Himalayan Times caught up with Ashoke Shumsher Rana, CEO of Himalayan Bank Ltd and former president of Nepal Bankers’ Association  umbrella association of class ‘A’ financial institutions  to know more on how banks were able to perform better in this fiscal and other issues relating to the banking sector.

Commercial banks witnessed profit growth of 16.24 per cent in the third quarter of this fiscal despite various shocks to the economy. How were they able to generate such profit?

In the last one year credit growth has been faster than deposit collection, so we can easily assume that the major reason for profit generation is credit expansion. In particular case of Himalayan Bank, we have now been maintaining credit-deposit ratio at 78 to 79 per cent from 74 to 75 per cent in previous years.

We have also been actively monitoring and managing the interest rate spread to the level permitted by Nepal Rastra Bank (NRB).

Apart from the card business, commercial banks have garnered profit from other sources like interest income, remittance income and treasury income, among others.

In which areas were banks hit hard due to tensions at Nepal-India border points that extended for four months?

Mainly, banks lost business in trade financing (letter of credit business), which plummeted sharply during the border blockade and another was tourism. Card business of the banks went down as tourist arrivals declined after the earthquake.

We (Himalayan Bank) have witnessed around 30 per cent drop in card acquiring services as the inflow of tourists declined.

NRB has also provided some relaxation regarding loan loss provisioning, loan rescheduling and restructuring. Will this help overcome the risks caused by the earthquake and border blockade?

I think it was supportive for the banks and financial institutions having significant exposure in tourism and wholesale/retail trade, the sectors that faced significant hit due to the earthquake and border blockade.

In our case, our provisioning is quite higher this fiscal because the board of directors of our bank has decided not to utilise the relaxation extended by the central bank.

We have decided not to utilise the relaxation provided by the central bank in the ‘watch-list’ category too.

Our provisioning is quite high also because we have still not been able to write-off the provisioning made for default of counter guarantee that was provided to China Railway 15th Bureau, the earlier contractor of Melamchi Water Supply Project due to some technical reasons.

As per the current provision, we need to blacklist the defaulter (borrower) to write-off the amount worth Rs 660 million provided as counter guarantee against bank guarantee of China Construction Bank (CCB) to China Railway but the problem is we cannot blacklist a foreign bank.

Has the Chinese court issued any verdict on the case filed by China Railway against Melamchi Water Supply Project and Nepali banks?

The case has not yet been decided. The court has asked us (banks) to submit the reason for the contract termination.

We have been approaching the Melamchi Water Supply Project for its official letter regarding the reasons of contract termination, however we have not been able to meet the chief of the Melamchi project since the last few months.

Melamchi, which is one of the defendants in the case filed by China Railway, is not willing to acknowledge the case. And we do not exactly know why the chief of the Melamchi project is deliberately ignoring all these developments.

Since the banks have generated huge profit till third quarter, can we assume that there will not be significant impact in profit in last quarter?

I think there would not be significant impact in profit generation in this fiscal. While analysing the balance sheet of the third quarter we can expect banks to perform better in last quarter.

Don’t you think that the performance of commercial banks (in terms of profit generation), and the capital market boom contradict the economic slowdown in this fiscal?

I do not think this is contradictory because our economy has been suffering due to political reasons. The country has been surviving even when economic growth has been slow.

The government’s spending in the development sector can stimulate economic growth but it has not been happening. It is only the private sector that is taking the lead to stimulate the country’s economy.

I think a parallel (informal) economy is functioning in Nepal. We (banks and financial institutions) have been doing fair business even to take deposits from the public we need to follow the KYC (know your client) procedure, among others.

However, there is no document like KYC required to purchase shares. It is surprising that billions of rupees are being collected during initial public offerings and further public offerings of various companies without any decline in the deposit of the banks.

Where does all the money come from? The money comes to the market when there are lucrative investment opportunities and then again there is no sign of that money later on. The government needs to scrutinise this phenomenon.

Do you mean to say there is capital flight?

I do not mean so. There was capital flight when the interest rates on deposits offered by the banks was low. Many used to deposit money in Indian banks to reap benefits of higher interest rate.

But after the implementation of KYC in India, it is tough to open an account in Indian banks for Nepalis to reap benefit of higher interest rate on deposits. The money is in the market, but we don’t know why it does not come to the banks.

A huge amount of cash is out of the banking net due to KYC and other hassles.

The government is preparing the budget for fiscal 2016-17. What suggestions do you have for the budget?

The government should focus on implementation of the budget so that the economy can gain traction. Raising capital expenditure to spur economic growth is our basic concern.

The government has announced loan scheme for youths against the collateral of academic certificates. What is your view on it?

Banks have never hesitated to issue loans to micro-small-medium enterprises (MSMEs), and entrepreneurs with innovative ideas. And we will do the same in the future as well.

For credit of over Rs 500 million to be issued it needs to be done as consortium loan and private sector umbrella organisations have been requesting government to withdraw this provision. What is your view on it?

This is a right move taken by the central bank. Many know this will help discourage the problem of multiple banking. Though administrative cost of the banks could go up in such consortium loans I feel it is a right step taken by the central bank.

The government had announced the Economic Revival Fund worth Rs 100 billion some months back but what do you feel has been hampering its implementation?

We from Nepal Bankers’ Association pledged Rs 30 billion in the fund announced by the government. And the remaining amount was to be arranged by the government.

The government announced this scheme hastily without arranging the required fund so it has been taking time to implement the scheme.