The oldest bank in Nepal is moving ahead with a modern vibe in its journey to provide banking services. 

The history Nepal Bank Limited, which spans over eight decades, tells a story about the rise, fall and rise again of the state-owned bank. The story is not only about revisiting the see-sawing past of the country’s first bank, but it is also about its modern outlook towards creating a smooth and sustainable future in its steady march towards a century of banking services. 

NBL’s Financial Position
With deposits totaling Rs 118 billion and extension of loans amounting to Rs 103 billion along with a customer base of 1.7 million deposit clients and 0.13 million credit customers, Nepal Bank is one of the most financially sound banks in Nepal. Similarly, it stands third in terms of low base rate among commercial banks in the banking industry. Nepal Bank’s current base rate is 7.82 percent. It currently operates 177 branches in 63 districts of the country.

The bank has projected a 25 percent business growth for a period of four years starting from the current fiscal year 2019/20. “We have increased our capital adequacy rate to 18 percent from 10 percent. Business volume will be increased according to our projection,” says Krishna Bahadur Adhikari, CEO of Nepal Bank Limited. Adhikari, who joined Nepal Bank in 2004 and worked in different managerial capacities, was appointed to the post in September 2019. Prior to his appointment as the CEO, he was Deputy CEO at the bank. 

According to him, the growth in business has enabled Nepal Bank to distribute dividend to its shareholders after many years. After a gap of 22 years, the bank announced distribution of 25 percent dividend (15 percent bonus shares and 10 percent cash dividend worth Rs 981.1 million) to its shareholders as approved in its 60th AGM held on January 10.

A Glorious History
Nepal Bank is perhaps the first institution established in Nepal which incorporated the public-private-partnership modality; the bank started with a paid-up capital of Rs 842,000 with 60 percent share of the general public and 40 percent of the government. It fulfilled some important roles of the central bank until Nepal Rastra Bank (NRB) came into existence in 1957. The bank pioneered some major areas of monetary arrangements such as starting the use of Nepali currency, exchange of foreign currency besides the usual banking functions of deposit collection and lending.  

A Rana regime official named Gunja Man Singh is credited with establishing Nepal Bank. It was during the late 1930s when Singh, who served as the First Secretary in Nepal’s Laision Office in London and was later involved in the formulation of company law and establishment of the Biratnagar Jute Mill, advised Rana Prime Minister Juddha Sumsher about the importance of having a bank to carry out monetary transactions and for the country’s economic development. Juddha Sumsher issued the Nepal Bank Law, 1937 and King Tribhuvan Shah inaugurated the office of the Nepal Bank Limited on the day of the Laxmi Puja festival in 1937.

As the country’s first bank, Nepal Bank has played a vital role in developing the banking habits of Nepalis, industrialisation and capital formation. “Whichever big industrial and trading houses there are in the country, they all started their business with us and regard Nepal Bank as a mother bank,” says Adhikari.

Going Through Troubled Times
In the 1990s Nepal Bank faced a very difficult time. In the mid-1980s, the Nepali banking sector was opened for private domestic and foreign investments. In the late 80s and early 90s, a number of foreign and domestic joint venture banks started their operation in the country ending the monopoly of state-owned banking entities. 

“Nepal Bank that time wasn’t able to come up with sound strategies to stay in the growing competition. It lost its reputation when it reached its journey of four decades,” mentions Adhikari, adding, “There were several weaknesses on the management front because of political interferences and weak decision-making process in the bank. This led to a situation where the bank faced big financial losses year after year for many years.”

Particularly, the bank had a rough journey from 1994 to 2003. It was during that time when Nepal Bank recorded a negative net worth of Rs 10 billion and cumulative losses of up to around Rs 9 billion and struggled with the piling up of non-performing loans (NPLs).By 2002, its bad loan had reached up to 60 percent while the bank’s capital was Rs 380 million. “We had to manage all managerial expenses from deposits at that time,” says Adhikari. 

The Revival
1990s was a miserable decade for the two state-owned banks - Nepal Bank Limited and Rastriya Banijya Bank (RBB). In a bid to improve the situation, the government introduced the Financial Sector Reform Programme (FSRP) in 2002 with support from The World Bank. Under this, the bank’s management responsibility was entrusted to a foreign management institution. “The World Bank’s report had clearly signaled that Nepal Bank was on the verge of collapsing and rigorous measures were needed to revitalize the bank. FSRP then came to our rescue,” says Adhikari. 

In the first two years of the handover, the foreign management focused on minimising the bank’s losses. The bank’s negative net worth gradually turned positive and profit began to increase consistently from 2005.  NPL was also reduced to 10 percent within the three years of commencing institutional reformation. Today, Nepal Bank’s NPL stands at 2.66 percent, well below the statutory limit of 5 percent normal standard. “During this period, the major focus of the bank was to improve its management system rather than on growth. Before the start of the reform process, there were more than 6,000 staff working in the bank. So, three types of voluntary retirement system (VRS) were implemented from 2003 to 2005,” recalls Adhikari. The aim was to reduce the number of staff by providing them additional compensation packages.

NRB took over the bank’s management and initiated the second phase of reforms after the exit of the foreign management a few years later. Declaring the institutional reform of Nepal Bank successful, NRB handed over the bank’s management to its shareholders in 2014. The troubled bank, which was considered technically insolvent before the start of the reform drive in 2002, logged a positive reserve fund ratio of 5.265 percent and NPL of 4.74 percent when the central bank exited. The number of staff was also reduced dramatically to 1,989 in 2014. 

Human Resources and Technology
Today, Nepal Bank is moving ahead smoothly with a major focus on customer-oriented services. For this, the bank has been hiring young, educated and motivated people who understand banking in the modern context. It currently has around 2,300 employees. “We will recruit 570 new staff. Probably, the hiring process will be completed within mid-April,” informs Adhikari.

Furthermore, the bank will replace the existing Pumori IV system software with the latest international standard software. “The recent cyber heists and intrusions have alerted us. We identified that there are several gaps in the existing software,” shares Adhikari. In a bid to ensure higher level of IT security, the bank has also formed a team to regularly monitor and supervise on the possibility of threats. Additionally, Nepal Bank recently started using the anti-money laundering system goAML as instructed by the central bank. The software can detect suspicious transactions and monitors the details of bank customers.

Products and Services
Some of the unique loan products of Nepal Bank include Sewagrahi Karja, Sulav Aawas Karja and Sambriddha Byawasaya Karja. Sulav Aawas Karja is one of the loan products in Nepali banking with lowest interest rate. “We have added 1 percent premium in the existing 7.82 percent of the base rate. So, this home loan product has low interest rate of 8.82 percent,” informs Adhikari.

Nepal Bank also is in the forefront to support the government’s eco-friendly progammes. To mark its 83rd anniversary, the bank launched the Green Saving Deposit scheme. Under this, the amount collected will be invested in green projects like hydropower, wind energy, solar energy, electric vehicles etc. The deposit scheme has 6.5 percent interest rate.

CSR
Not only earning profit, Nepal Bank has also been following the corporate social responsibility (CSR) norm of ‘giving back to society’. The bank has been investing one percent of its profit, particularly in the areas of education, health, heritage preservation. Last year, it handed over Rs 5.2 million to an earthquake-damaged school in Sindhupalchwok. This year also, it donated Rs 5 million to a storm-destroyed school in Terai. Besides, the bank also provides financial support to sport and culture preservation campaigns.

''Our focus is on implementing result-oriented policies''

As the bank’s CEO who was appointed to the post a few months ago, what are your plans and focus in terms of maintaining the bank’s sound financial health and corporate governance?
Our focus is to develop Nepal Bank as a model banking institution in the country. We want to make a full utilisation of our capacity. Out attempt in this respect has been towards developing a better work culture, which will be more focused on customer-oriented banking services. Today’s banks are dependent on technology. Therefore, we are ready to invest in adopting new technologies. Strengthening our internal mechanism and adopting a customer-oriented philosophy for business growth is our focus. 

Business growth is also needed to fulfill the expectations of our shareholders. After 22 years, the bank has been able to distribute dividend to its shareholders. However, maintaining it in the future is a challenge for us.

The narrowing of interest rate spread has pressurised us to increase business volume. The rate, which was 5 percent earlier, came down to 4.5 percent in the last fiscal year. It will decrease to 4.4 percent by the end of the current fiscal year. So, there is a challenge for us increase business volume with the squeezing interest spread.

Our focus is on implementing result-oriented policies. We have set criteria for enhancing the quality of our services. We are working with a zero-tolerance policy in case of any misappropriation or misuse of even a rupee.

The last few years have seen a major transformation in NBL in terms of human resource management with a new generation of staff taking over from the older generation. How difficult or smooth has it been for the bank in this regard? 
Every year, we recruit new staff through the Public Service Commission (PSC). It has its own schedule and criteria to select the best, so there are no difficulties in terms of recruitment. We provide trainings related to basic banking and socialisation to new staff during their induction.

We also provide different types of trainings according to the need to enhance the capacity of our employees. We have our own training division. Annually, around 200 staff participate in international forums for training. 

Training is a part of human resource management. Periodic visits to different branch offices are organised where the staff are reminded about our bank’s position, their responsibilities and targets etc. The bank’s management also takes feedback from staff.

The current fiscal year’s Monetary Policy has emphasised on the ‘big merger’ of banks. How has NBL taken this approach of the central bank? Is the bank currently in talks with other BFIs for merger and acquisition (M&A)?
The emphasis of the Monetary Policy is to reduce the number of banks. Even The World Bank has suggested limiting the number of commercial banks to up to 15. Banks have been playing an essential role to increase access to finance across the country. Until a few years ago, only 40 percent of the country’s population was banked; it has reached around 61 percent now.  However, the number of banks and financial institutions is too high at the moment. With mergers, the banks can grow stronger in terms of capital, deposits, lending and human resource, among other aspects. 

As Nepal Bank is a joint-venture bank of the government and private investors, it cannot decide independently regarding merger with another institution. While we have the autonomy for day-to-day activities, the government holds the majority (51 percent) share in the bank. So, we need direction from the government for any major strategic moves like mergers. 

Nepal Bank has stayed in a relatively comfortable position in terms of liquidity management compared to other banks. How has the bank managed this problem?
Unlike previous years, the shortage of loanable funds in the banking sector is not acute this year. Nepal Bank remained unaffected from the crisis in the previous years because we never followed the path to aggressive growth. We have been moving ahead in planned ways and sustainable manners utilising our internal capacity and available means and resources. Our policy has helped us to maintain the credit-to-capital-and-deposit (CCD) ratio at 75 percent. This year, we are trying to maintain the ratioat 77 percent. We even rescued some banks from possible regulatory penalties by purchasing their loans. We do not have problems regarding deposit collection. Currently, our deposit totals Rs 118 billion. We practice daily monitoring and we provide credits/loans according to our capacity.