Gopal Tiwari

Kathmandu, January 15:

Nepal Rastra Bank (NRB) has extended the contract of Rastriya Banijya Bank (RBB) led by Bruce Henderson for one more year as the previous contract of the same management completed its two year term today. According to sources at the RBB, the new management led by Henderson will work till July 15, 2006 as per the contract agreement with central bank reached on late Friday. Sources said the bank would focus on strengthening reforms already initiated in the bank under the financial sector reform project. The new management in RBB was inducted following a survey by KPMG Barents Group in June 2000 which found the bank ‘technical insolvent’. The negative net worth of the bank then was estimated to be Rs 14 to Rs 18 billion ($200 - $255 million).

The new management has been given full autonomy as excessive political interference in appointments and lending were deemed to have caused huge damage to the bank earlier. Unsound banking practices had undermined the banks’ credit portfolios also.

After the new management took control of the bank, it has gradually been restructuring by recruiting qualified staff, introducing new technologies and computerisation in the bank. According to the bank’s recently approved audit report, the bank has procured over 496 computers, 47 servers and six laptops in a bid to make the bank competitive. Of the total RBB branches, 15 have been equipped with power and data system, among other information technologies being installations. The bank’s officials disclosed that employee expenses have been reduced due to the reduced number of employees, consequent to the volunteer retirement scheme. Employee expenses like overtime were controlled by an effective budgetary control system. Yet, a lot remains to be done.

The government has already got loans worth over $70 million from donors for the second phase of financial sector reforms. The bank’s report states that within 18 months of takeover by the new management, the bank had recorded a net profit of Rs 1,100 million in the fiscal year 2003-04 after suffering a net loss of Rs 4,839 million in the previous year (net swing of Rs 5.9 billion).

The bank has been focussing on eliminating overhead expenses, making the budgetary system effective and strengthening credit standards to ensure that no additional NPAs are created. Other focus areas of the bank are treasury management with increased investment in inter bank-lending market, foreign currency placements and treasury bills resulting in utilisation of excess liquidity with increased interest income. The new management of the bank has huge challenges in the days such as standardising the credit system, employing qualified staff and train the existing ones to survive and compete in the existing environment, expand lending ratio, maintain transparency, reduce NPAs which stand at 56 per cent now and recover more loans.