Covid-19 pandemic has dealt a massive blow to the Nepali business sector. But every cloud has a silver lining. Lately, corporate institutions are adapting to the ‘new normal’ to continue their activities. The changes are most visible in the banking and financial sector as banks have resorted to using information technology to provide services to their clients. Anupama Khunjeli, CEO of Mega Bank Limited, sees opportunities for banks amid the crisis.  Khunjeli, who is the first female CEO of a private sector bank in Nepal, has spent three decades in the banking sector starting her career as a teller in 1991 at ANZ Grindlays Bank (now Standard Chartered Bank Nepal). In an interview with New Business Age, she talked about the pandemic-induced challenges, changes occurring in the banking sector, potential areas of investment, business growth of Mega Bank,  among other topics. Excerpts:

The first quarter financial reports of a majority of commercial banks have indicated that the banking industry has taken a hit from the Covid-19 pandemic-induced slowdown. How much damage has been done?
All sectors of the economy have been affected by the Covid-19 pandemic in one way or another. As banks hold a pool of investments in all sectors of the economy, the resultant impact will obviously be observed in the banking sector as well. The government and regulators have brought various programmes and adopted several policies to uplift the economy from this pandemic-induced slowdown. Refinancing facility, loans at subsidised interest rate, interest rebates, deferral of loan and interest repayments, waiver of penalties and top-up loans have been offered to provide relief to the affected businesses. From Ashad 2077 (June-July 2020) onwards, the interest spread of the banks has been reduced to 4.4 percent. The lending rates have come down to a single digit. All these factors have helped to boost the business of the borrowers enabling them to overcome the pandemic-induced slowdown.

Besides, the few hard-hit sectors like tourism, transportation and aviation, all other sectors are likely to bounce back soon. As Nepali banks have an adequate capital base and in addition, sufficient provisioning has been arranged, the banking sector will not incur substantial losses as a result of the economic fallout of the Covid-19 crisis. However, the effects can be seen in the growth of profit depending on how soon the economy recovers. Some very positive signs of economic revival such as increasing demand of credit have been seen in the recent months; in the five months of the current fiscal year, bank lending has grown by Rs 200 billion.

If businesses start defaulting on loan payments, NPAs are certain to go up. How strong are Nepali banks in the face of the current headwinds?
Banks in Nepal have low NPAs compared to banks in other SAARC countries. The NPA of the overall banking industry is within the regulatory limit and has remained below 2 percent during the pandemic. Despite debt moratorium and other measures announced by the central bank, NPAs of banks have remained at a tolerable limit. However, the provisioning made against probable asset-related risks has helped to secure the financial health of the banks. The average paid-up capital of Nepali commercial banks as of mid-October 2020 is around Rs 10.5 billion and it will be around Rs 12 billion including the bonus shares proposed for FY2019/20.

Although, additional provisioning is inevitable, the overall Capital Adequacy Ratio (CAR) of commercial banks is above 14 percent as of mid-October 2020. Thus, Nepali banks are sound enough to face the stress caused by the current headwinds. Banks have been analysing the possible impact of Covid-19 and have moved ahead by managing not only the credit risks but also operational and market risks. The smooth landing of enhanced credit risks would also depend on the regulatory changes that will have to be well thought out.

At a time when many other commercial banks have reported a fall in profit and an increase in their NPA levels, Mega Bank’s financial indicators look sound as shown by the Q1 financial report. What has the bank done to minimise the various impacts of the slowdown on its business?
Banks are bearing the costs for the various benefits passed on to the borrowers resulting in lower growth in profits. However, Mega Bank’s performance is better compared to the industry average in the first quarter; it is the resultant impact of substantial increase in Mega Bank’s business (around 60 percent YOY increment) from the acquisition of Gandaki Bikas Bank Limited and from regular business growth and various cost control measures taken to minimise the impacts of the crisis. During the period, NRB relaxed the credit-to-core-capital-plus-deposit (CCD) ratio to 85 percent from 80 percent. We balanced our loans and deposits portfolio at the optimum CCD level. We utilised the available funds in providing loans to customers at very competitive rates instead of investing in inter-bank transactions. This helped us to utlise our low-yielding liquid funds to create high-yielding assets. This has helped us a lot in booking profits. In addition, we reduced interest rates in deposits as per the situation in the market and also reined in administrative costs without compromising on the quality of services.

Further, we strategically reduced the hiring of new employees; rather we managed our human resources from within the existing workforce including employees from the erstwhile Gandaki Bikas Bank. No branch expansion was carried out during the pandemic period except those planned in the previous year. Besides, many work process, products and services have been digitised. All these initiatives enabled the bank to increase the book size, improve performance and also helped us to pass on the benefit of lower cost of fund to our borrowers through competitive base rates.

How challenging has the past nine months been for Mega Bank Nepal Limited in terms of continuation of business and operations?
The initial days of the pandemic were very difficult. Borrowers and businesses reported losses, slowed sales, and declining profits. Job losses were in significant numbers as the virus continued to spread around the world. Banking customers started to find financial relief as the central bank announced relief measures such as 10 percent discount on total interest payment during the month of Chaitra 2076 (March-April 2020) and 2 percent rebate on interest from the month of Baisakh 2077 (April-May 2020) till Ashad 2077 (June-July 2020). Mega Bank has provided around Rs 500 million in interest rebates and discounts during the period in line with the central bank’s instruction. More than 20 percent of the profit has been spent on rebates and relief packages which hit the bottom-line profit of Mega Bank.

In addition to managing the direct economic impacts of the pandemic, banks need to have a plan in place to protect employees and customers from the virus. Mega Bank has taken appropriate measures with the introduction of Work-from-Home (WFH) policy just before the lockdown. Through timely revision of business continuity plan (BCP) and formation of Crisis Response Team, the bank managed to deploy proper strategies to combat the Covid-19 pandemic. Mega Bank was already equipped with Digital Signature which makes WFH more effective and secure. We are the first and the only bank in Nepal to have 1,000 digital signatures in place. Though there was a complete lockdown for more than two months, the bank succeeded in providing services to its valued customers.

Further, Covid-19 has challenged the traditional way of banking. Ensuring smooth service during the lockdown was challenging in itself in terms of managing the workforce given the restrictions in movement of vehicles, such as the odd-even vehicle rule implemented by the authorities. Later, more staff got coronavirus infections and our bank had to operate with 50 percent of the workforce. However, we took extra precautions to help prevent the spread of coronavirus and kept our customers and employees safe.  We were continuously monitoring the recommendations set forth by the government and were asking both our customers and employees to reduce or eliminate personal interaction. In the meantime, we paid adequate attention to increasing employee communications and cleaning/disinfecting efforts in our offices.

With Covid-19 cases soaring the world over, physical banking has become less appealing and people are moving towards digital banking. Mega Bank has fully focused on smooth operation of ATMs and digital banking through mobile banking and internet banking. As the inter-bank ATM transactions became free, there has been a 500 percent increment of ATM-based transactions from 200 percent earlier. Through sincere and dedicated efforts of all staff members, we managed to operate and provide services to our customers by adapting to the ‘new normal’. The crisis has taught us new lessons and this experience has bolstered our confidence to face any difficult situation in the future.

With economic activities gradually gaining momentum in the last few months, how has the situation improved for Mega Bank? How is the demand for credit currently?
The demand for credit has increased after the government lifted the various restrictions. While the financing demands are not for new projects, the credit demand is mainly for existing projects, SMEs and for sectors such as agriculture, stock market and hydropower, etc.

In last five months, Mega bank’s credit business has grown by over Rs 10 billion which is above the industry average. During the pandemic period, we launched various new loan schemes that helped the bank to achieve good growth.

Which sectors are absorbing bank loans and which sectors have remained depressed? How will the credit demand grow in these sectors in the next 6 to 12 months?
Credit flow is increasing across all sectors including corporate, MSME and retail. Similarly, construction of infrastructure projects like residential housing has also started and the credit demand has increased in this sector. Currently, the flow of bank loans is increasing in those sectors where the external environment is not affecting the cash flow of businesses like agriculture, fast moving consumer goods (FMCG) trading and digital platforms. Many business entities are changing their operation module and operating in more efficient ways to address the challenges created by the pandemic. The most affected sector is obviously tourism followed by transportation and education. While tourism will need time to bounce back, all the other affected sectors have started to generate some cash flow though not at pre-pandemic levels. So, moving forward they need some sort of support from banks.

What major changes has Covid -19 brought to the Nepali banking sector? How do you envision the post-Covid banking and financial services in Nepal?
Earlier, Nepali banks were not profound in adopting new technology in banking. But the pandemic has taught us the lesson that technology-based banking has no alternative in this fast-developing dynamic age of information systems. Banks have learned that investing in IT infrastructure is necessary for sustainable banking. Now, the banking products, services and processes require automation and digitalisation. The pandemic has changed expectations and requirements of customers in respect to the way we serve them. Banks responding to the needs of the customers and their expectations will achieve sustainable growth. The services in the Nepali banking industry will also be guided by the roles played by various stakeholders including the government and the central bank alongside products and services of IT-based companies, policies and procedures.

The pandemic has also changed the thought process towards various strategic orientations like mergers & acquisitions (M&As), branch expansion, recruitment and other activities incurring substantial costs. Banks are focusing towards optimal utilisation of resources. The pace of network expansion has now slowed down and the need for M&As has been felt more than ever with the media frequently covering possible mergers between BFIs including commercial banks.

How is Mega Bank strengthening its digital banking infrastructure?
We are aware that digitalisation is not an option for the banking industry; rather it is inevitable because every industry is being digitised and the banking sector is no exception. Further, it should be understood that for an effective digital transformation of financial services - people, process, product and technology - are the foundations.

We are training our people and providing them with opportunities to enhcance their careers. We have different focal departments such as Digital Products, Cards & Alternate Channel, MIS & BPA and IT with experienced and qualified human resources. We are working with the formation of specific task forces and committees like the Digital Transformation Steering Committee.

We are very proactive in automating our banking processes. Adoption of ‘Mobile First’ strategies, promoting digital payment (cashless transaction) system, adaptation of Omni Channel strategy, Customer Relationship Management System, usage of different software/portals for internal business processes like, DMS, Loan Management System, RIGO, inventory management etc. are pivotal initiatives that we have taken to automate our processes.

We are integrating our banking products into the digital platform. In addition, we are launching various digital products and services like online customer on boarding systems such as Tick Banking, online loan/card eligibility system, online account opening, video account opening, smart banking, and internet banking, among others.

We are also working in strengthening our digital products in terms of services, simplicity and security. We are making huge investments in software, networking systems, high range servers and premises for cloud computing systems wherever permissible.

With the launch of ‘Mega Smart Krishi’ service and ‘Mega Kisan Credit Card’ last July, Mega Bank is expanding its presence in the agriculture sector. What opportunities has the bank seen in agriculture at a time when many other banks are reluctant to finance agriculture projects?
We are aware that agriculture has a huge potential which has been reflected in our slogan ‘Halo to Hydro’. However, this is one of the most disorganised sectors and we need to familiarise famers with modern banking services. With dedicated and experienced teams at all our outlets, we are able to fulfill the needs of farmers alongside identifying the associated potentials in agribusiness investments. As a large number of people of the country are working in the agriculture sector, the government and the central bank have also prioritised this sector. As per the current arrangements, banks are now required to disburse 15 percent of total loans in the agriculture sector within the next three fiscal years and 11 percent within the end of the current fiscal year. Mega Bank has a dedicated Agro and Micro Financing Department with a well experienced team.

Besides providing lending services, how is the bank supporting the farmers and rural agribusinesses? How is the bank promoting the scheme?
Our innovative agriculture lending products have been received well in the market. Further, we are joining hands with various organisations working to promote the sector and introduce new schemes. We are conducting banking literacy programmes to raise awareness among the farmers about our products and services; we are running a campaign to promote the schemes at province levels as well. Currently, our branches in different provinces are processing, soliciting and marketing agriculture loans and similar plans are ready for all branches.

Besides agriculture, what other sectors has Mega Bank identified as having big investment potential?
Food processing, manufacturing of FMCG products and import are the sectors that are expected to grow further. Besides, retail and wholesale sectors are also likely to grow constantly. Similarly, demand for retail loans for residential housing or construction along with margin type loans, subsidised loans is expected to grow in the coming days.

The small and medium enterprises (SMEs) have been one of the biggest victims of the pandemic. How is Mega Bank helping SMEs? What plans does the bank have for SMEs?
Mega Bank realised the problems faced by the SMEs at the very early stage of the pandemic. We have provided facilities like discount on the interest rate and additional loans to continue business activities in line with the NRB directive. Currently, we are rescheduling long-term loans of businesses in the high and medium affected sectors in order to help SMEs regain their footing in the market. Also, we have identified SMEs for refinancing. We are one of the first banks in Nepal to launch a special product to help the educational institutions to meet the shortfall in their cash flow. In addition, the bank has signed agreements with various organisations and associations to promote lending to SMEs. Similarly, we are also conducting SME-focused literacy programmes so that they can understand the banking processes and procedures. We are also going to introduce automated approval process for SMEs so that clients get the loans quickly once they submit the required documents.

The participation of women in banking has been emphasised in the recent years. How is Mega Bank working to increase the number of women in its workforce and clientele?
Commercial banks in Nepal altogether employ more than 40,000 people and 40 percent of them are women. In the context of Mega Bank, 50 percent of the senior management comprises of women which is the highest in the industry. Of the total 1,820 staff, 43 percent are women. Also, the bank has a customer base of more than 1,100,000 out of which 44 percent are women.