Anil Gyawali is the chief executive officer of Nabil Bank. He began his banking career 30 years ago by joining Nabil. After serving there for 12 years, he moved to Citi Group where he worked for 12 years including six years at its New Delhi office. He rejoined Nabil in 2011 after working as the CEO of Global Bank for three years. Gyawali talked to The Kathmandu Post on the current situation of the Nepali banking sector and Nabil’s financial performance. Excerpts:
It has been 30 years since Nabil was established as the first private sector joint venture bank in the country. What legacy could it leave for Nepal’s banking sector?
Banking in Nepal was in fact at a primitive stage when Nabil was established. It is the bank that introduced modernisation in the country’s banking sector. It is the bank that started customer-oriented banking putting customer service at centre stage. It also showed the young generation of that time that banking could be good career opportunity when attraction for government jobs was greater.
Nabil’s net profit during the second quarter this year was lower compared to the same period in the last fiscal year. Why is that?
It is because our provisioning amount against possible losses almost doubled. We had to make provisioning of Rs 490 million compared to last year’s Rs 250 million. This is the provisioning made against a few real estate loans whose recovery has been somewhat problematic. We, however, expect to recover the amount significantly in the next six months. These are the loans that have been carried forward for a long time. As real estate activities have gone up lately, we are hopeful that we can recover the amount.
Interest rates have come down drastically in recent days. What impact will it have on the banking sector?
Interest rates have already come down to a level which is lower than what should be in general. It is not good for the economy that loans are available at a rate lower than inflation. It invites the risk of over-exposure of loans to certain sectors and may create a bubble in those sectors. Compared to the interest rates in India, it is already lower here, and it is particularly due to the surplus liquidity in the market. That is why we have introduced a new home loan scheme at an interest of as low as 8 percent with certain conditions to be applied to get such loans. General home loan interest rates have also come down to 9 to 9.5 percent. Hire purchase interest rates have come down to 10 percent. Interest rates for project financing are also in the range of 10 to 12 percent.
Has Nepal Rastra Bank’s (NRB) directive to bring down the spread rate to 5 percent also influenced the current downturn in interest rates?
It has hardly contributed to bringing down interest rates. This is the result of excess liquidity in the market.
Nabil has one of the highest spread rates in the industry as of the second quarter of the current fiscal year. How hard will it be to bring it down to the specified level within the current fiscal year?
After the central bank issues a directive, we are required to comply with it, and we will definitely bring it down. But I think it will not help the banking sector and its health. As banks are not in a position to make enough fee-based income, interest earning is a good income source for them. If that opportunity is also shrunk, it will reduce their ability to withstand shocks in the banking sector. We have asked NRB to revise the current provision on spread rate from the Nepal Bankers’ Association. We are hopeful that the central bank will reconsider its directive.
The central bank has also moved to cut your many service fees when you are complaining about low fee-based income. How have you taken the central bank’s move?
The fees being charged by banks here are very low compared to banks in other countries. I think the central bank’s move is guided by the aim to ensure transparency in the fees being charged instead of completely depriving us of the opportunity of charging service fees. If banks are barred from collecting fees on technology-based services, it will force them to compromise on the quality of service. It will constrain our ability to invest in security and branch network as profitability will be low.
Based on the result of the second quarter, what kind of prospects do you see for Nabil’s profitability this year?
We have expected a profit growth of 10-15 percent this year. Our operating profit in the second quarter is good, and it is on a good trajectory. However, low income from treasury bills due to lower interest rates and compulsion to bring down the spread rate to 5 percent may affect profitability. In such a scenario, we will be happy with the same amount of profit as in the last fiscal year.
What areas are you focusing on for lending?
Besides our regular lending, we are in favour of increasing lending to the housing sector. We have felt that there has been a price correction in the housing and real estate sector, and we feel that demand for loans in the sector is building up. We have also been lending adequately to agriculture and hydropower. However, we fear that if loans are increased more than demand to certain sectors due to the central bank’s directive, risks are overlooked and it may bring problems in the sector. We also have to see the absorbing capacity of the sector. Currently, micro-finance institutions are now currently witnessing a similar situation.
Lately, operational risks in the banking sector have emerged as a major concern. What is Nabil doing to address this concern?
We are soon going to launch a chip-based card system. We have also set the mechanism where checks and balances is established while giving roles to our staff. We have not given the entire responsibility to a single person in order to mitigate the risks arising from such a situation. The risk is not mitigated cent percent anywhere in the world, but we are creating a system where the risk is minimized substantially.
source/photo courtesy: the kathmandu post,12 feb 2014
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