Provision on interest spread will hit branch expansion in rural areas:Bhuvan Kumar Dahal,CEO, Sanima Bank
The latest provision is also likely to stifle innovation as banks will not want to invest much time in designing various deposit and credit products and beef up risk management system. This will ultimately reduce the government’s revenue.
RUPAK D SHARMA
Bhuvan Kumar Dahal was appointed as CEO of Sanima Bank last week. Dahal, who has over 20 years of banking experience, was working in one of the top positions at Nabil Bank prior to joining Sanima seven months ago. In an interview with Rupak D Sharma of The Himalayan Times, Dahal talked about growth strategies that he is planning to adopt at Sanima, the bank’s second quarter result, and a controversial directive on interest spread issued by the central bank. Excerpts:
You weren’t expecting to become the CEO so early, were you?
Well, I was appointed as CEO a little earlier than I had thought because of the resignation tendered by Kumar Lamsal (former CEO of Sanima). But I was always prepared to shoulder this responsibility. My new role has brought opportunities as well as challenges, but I am confident I will be able to discharge my responsibilities to ensure sustained growth of the bank.
What kind of strategies are you planning to adopt?
After I joined Sanima, Lamsal, the then team and I prepared a five-year strategic plan, which has charted out strategies for deposit, credit and other business growth with required focus on risk management. As per the plan, Sanima will continue focusing on consumer lending and extending credit to small and medium enterprises, which are considered relatively low-risk businesses. Along with this, we will strengthen our corporate lending unit. Sanima will also introduce new micro lending products. In this regard, we are planning to open a dedicated micro lending window at some of our branches. This will give us an opportunity to directly interact with micro borrowers, which will help us in tailoring products accordingly to suit their needs. We are also planning to open a separate department in our branches in the hilly region to oversee agriculture lending. These departments will be manned with experts in the agricultural sector, who will formulate strategies on increasing flow of credit to various agricultural projects.
As per this strategy, we have already started discussions on conducting feasibility studies on possibilities of raising financing for cardamom and rudraksha farming in Khandbari and Myanglung. Also, Sanima will continue to increase lending towards the hydro sector, in which we have quite some exposure and are probably the best in the industry.
What other plans do you have in mind?
We are also planning to further improve customer service by embracing technology. In this regard, we are planning to automate as much work and processes as possible. Also, risk management, operations and sales department will be strengthened simultaneously so that our growth is not shallow, and because I believe banking is a long-term business and we should not look for quick results. I also believe in keeping staff members motivated as this is the only way to mitigate risks and take the bank to a new height.
It is said directives, like the one on interest spread cap, introduced by Nepal Rastra Bank (NRB) have affected mid-sized banks like Sanima the most. What is your say on this?
The directive on interest spread cap will affect all banks, irrespective of their size. However, this provision has not affected Sanima so far as our spread is below five per cent. Although many banks so far have managed to limit the interest spread at below five per cent, as demanded by NRB, Nepal Bankers’ Association has formally requested NRB to reconsider this decision and we hope the central bank will respond positively. One of the downsides of the decision to introduce the cap is that it is likely to discourage banks from opening branches in rural areas or encourage closing existing branches. This is because cost of operating branches in rural areas is high and banks may not want to raise costs unnecessarily, as interest spread cap of five per cent will not make them profitable. So, this will hit NRB’s plan to raise people’s access to finance.
The latest provision is also likely to stifle innovation as banks will not want to invest much time in designing various deposit and credit products and beef up risk management system. This will ultimately reduce the government’s revenue. This, however, does not mean NRB introduced the cap with a wrong intention. Bankers have probably not been able to explain the side effects of the provision to NRB. If we are able to do this, I am confident NRB will reconsider the decision as we are in the same boat. I do not believe NRB will take any step which will discourage financial inclusion and innovation.
But NRB does not seem to be in a mood to roll back the decision...
Actually, NRB should not have introduced the directive on interest spread cap as it is not relevant for the banking sector like that of Nepal, where competition is very tough. To survive in such a competitive market, banks are continuing to offer discounts on lending rates and premiums on deposits.
Similarly, banks here are not taking transaction charges, which are very common in developed countries where interest spread is relatively on a lower side. So NRB’s assumption that financial intermediation cost is very high needs to be revisited.
It is being said banks’ profit will be hit by this provision. What is your say?
Of course, provisions like interest spread cap will hit profits of the banks. Currently, the banking sector’s return on equity is around 20 per cent only. In a country where inflation is hovering at around 10 per cent, the return is not huge. So the myth that the banking sector is earning lots of profit has to be busted.
Lastly, your bank’s second quarter financial report has just been published and it looks fantastic. The report also shows that the bank has very little idle fund. Does this mean Sanima is not affected by the problem of liquidity surplus?
No, that’s not the case. We currently have a liquidity ratio of around 22 per cent. Of this, five per cent of the total deposit is with NRB, around two per cent of the deposit is in our vault and around 10 per cent of deposit has been invested in government securities. This means we still have idle fund of around Rs 500 million to Rs one billion, which is not giving us any yield.
source: Sharma, Rupak D(2014),"'Provision on interest spread will hit branch expansion in rural areas' , The Himalayan Times,25 Jan 2014
photo courtesy: The Himalayan Times
LINK
RUPAK D SHARMA
Bhuvan Kumar Dahal was appointed as CEO of Sanima Bank last week. Dahal, who has over 20 years of banking experience, was working in one of the top positions at Nabil Bank prior to joining Sanima seven months ago. In an interview with Rupak D Sharma of The Himalayan Times, Dahal talked about growth strategies that he is planning to adopt at Sanima, the bank’s second quarter result, and a controversial directive on interest spread issued by the central bank. Excerpts:
You weren’t expecting to become the CEO so early, were you?
Well, I was appointed as CEO a little earlier than I had thought because of the resignation tendered by Kumar Lamsal (former CEO of Sanima). But I was always prepared to shoulder this responsibility. My new role has brought opportunities as well as challenges, but I am confident I will be able to discharge my responsibilities to ensure sustained growth of the bank.
What kind of strategies are you planning to adopt?
After I joined Sanima, Lamsal, the then team and I prepared a five-year strategic plan, which has charted out strategies for deposit, credit and other business growth with required focus on risk management. As per the plan, Sanima will continue focusing on consumer lending and extending credit to small and medium enterprises, which are considered relatively low-risk businesses. Along with this, we will strengthen our corporate lending unit. Sanima will also introduce new micro lending products. In this regard, we are planning to open a dedicated micro lending window at some of our branches. This will give us an opportunity to directly interact with micro borrowers, which will help us in tailoring products accordingly to suit their needs. We are also planning to open a separate department in our branches in the hilly region to oversee agriculture lending. These departments will be manned with experts in the agricultural sector, who will formulate strategies on increasing flow of credit to various agricultural projects.
As per this strategy, we have already started discussions on conducting feasibility studies on possibilities of raising financing for cardamom and rudraksha farming in Khandbari and Myanglung. Also, Sanima will continue to increase lending towards the hydro sector, in which we have quite some exposure and are probably the best in the industry.
What other plans do you have in mind?
We are also planning to further improve customer service by embracing technology. In this regard, we are planning to automate as much work and processes as possible. Also, risk management, operations and sales department will be strengthened simultaneously so that our growth is not shallow, and because I believe banking is a long-term business and we should not look for quick results. I also believe in keeping staff members motivated as this is the only way to mitigate risks and take the bank to a new height.
It is said directives, like the one on interest spread cap, introduced by Nepal Rastra Bank (NRB) have affected mid-sized banks like Sanima the most. What is your say on this?
The directive on interest spread cap will affect all banks, irrespective of their size. However, this provision has not affected Sanima so far as our spread is below five per cent. Although many banks so far have managed to limit the interest spread at below five per cent, as demanded by NRB, Nepal Bankers’ Association has formally requested NRB to reconsider this decision and we hope the central bank will respond positively. One of the downsides of the decision to introduce the cap is that it is likely to discourage banks from opening branches in rural areas or encourage closing existing branches. This is because cost of operating branches in rural areas is high and banks may not want to raise costs unnecessarily, as interest spread cap of five per cent will not make them profitable. So, this will hit NRB’s plan to raise people’s access to finance.
The latest provision is also likely to stifle innovation as banks will not want to invest much time in designing various deposit and credit products and beef up risk management system. This will ultimately reduce the government’s revenue. This, however, does not mean NRB introduced the cap with a wrong intention. Bankers have probably not been able to explain the side effects of the provision to NRB. If we are able to do this, I am confident NRB will reconsider the decision as we are in the same boat. I do not believe NRB will take any step which will discourage financial inclusion and innovation.
But NRB does not seem to be in a mood to roll back the decision...
Actually, NRB should not have introduced the directive on interest spread cap as it is not relevant for the banking sector like that of Nepal, where competition is very tough. To survive in such a competitive market, banks are continuing to offer discounts on lending rates and premiums on deposits.
Similarly, banks here are not taking transaction charges, which are very common in developed countries where interest spread is relatively on a lower side. So NRB’s assumption that financial intermediation cost is very high needs to be revisited.
It is being said banks’ profit will be hit by this provision. What is your say?
Of course, provisions like interest spread cap will hit profits of the banks. Currently, the banking sector’s return on equity is around 20 per cent only. In a country where inflation is hovering at around 10 per cent, the return is not huge. So the myth that the banking sector is earning lots of profit has to be busted.
Lastly, your bank’s second quarter financial report has just been published and it looks fantastic. The report also shows that the bank has very little idle fund. Does this mean Sanima is not affected by the problem of liquidity surplus?
No, that’s not the case. We currently have a liquidity ratio of around 22 per cent. Of this, five per cent of the total deposit is with NRB, around two per cent of the deposit is in our vault and around 10 per cent of deposit has been invested in government securities. This means we still have idle fund of around Rs 500 million to Rs one billion, which is not giving us any yield.
source: Sharma, Rupak D(2014),"'Provision on interest spread will hit branch expansion in rural areas' , The Himalayan Times,25 Jan 2014
photo courtesy: The Himalayan Times
LINK
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