An outlook of a banker and entrepreneur at this unprecedented time

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Banks and financial institutions were unable to expand their business as their paid-up capital quadrupled and economic activities did not expand accordingly. The returns were very low. We were all expecting an expansion of investment in the hope of a majority government and political stability. But again, the world is shocked by the sudden outbreak of COVID-19 pandemic. Nepal has not been an exception.

After the shutdown, the overall economic activities have come to a standstill and banks and financial institutions are also facing these challenges. Looking at the quarterly results of mid-April last year, the condition of banks and financial institutions has been pushed towards a very serious crisis. If the government and the central bank do not support with appropriate policies for the banks as well as the customers on time, the entire economy could face a serious setback. 

The government had already lowered its growth target after economic activity slowed, but the Central Bureau of Statistics (CBS) has projected that Nepal's economic growth will shrink to 2.2 percent in the current fiscal year. This shows how dire the situation will be. There is still confusion and uncertainty as to how long the lockdown will extend and how to proceed once restrictions are lifted.

Meanwhile, economic activities have come to a complete standstill. Apart from emergency and livelihood activities, no economic activities have taken place. Even people have stopped going to the hospital for their regular health check-ups. In the absence of economic activity, the bank's profits were bound to decline. In addition to this, the banks have not been able to raise even the interest income earned due to the lockdown. This has created a situation where banks must make provisions for large amount of interest earnings as well as principal. This happened till mid-April. The lockdown has been prolonged since then and it is not clear how far it will go. Due to this, it seems that it will be very difficult to collect the interest of the bank.

Public Health and Economy are equally important 
Public health is a top priority right now, no doubt about it. But in the coming days, the government will have to find a balance between public health, epidemic control and economic activities. If we are always in a state of shut down, tomorrow there will be a state of famine and the day will come when people will die of hunger and not of disease. In order to keep the economy afloat after the lockdown, it is necessary for the people to be able to run their daily activities by giving cash or some other relief. Therefore, the government and Nepal Rastra Bank should adopt a timely policy to overcome the problems of banks and financial institutions.

Only an open mind and big heart can boost the economy 

This is an extraordinary condition for human life and it needs to be treated in an extraordinary way. Running the economy is one of the most challenging responsibilities we have today. Many countries have moved forward with a minimum balance. If the government invests money in our country, then the economy will run and people's livelihood will also run. We have been suffering losses for the last two months and it is not yet possible to measure and say how much damage has been done. For this, timely policy rules should be brought and addressed. Looking at the world economy and experience, the government should increase consumption. The decline in the purchasing power of the people due to lockdown should be increased.

Due to the lockdown, firstly, the purchasing power of people has declined due to loss of employment and daily income. Secondly, the goods ready to be sold in shops have not been sold due to shut down. Some goods have expired and are not consumable and useful. The goods produced and consumed daily have not been able to reach the customers. The peak season is almost over for the use and consumption of some seasonal industries. Now it is not possible to sell or distribute these products. And it continues to be uncertain whether the raw materials can be used in the next season.

Lockdown is a problem, but we can make it into an opportunity if we work smart. We lag behind in many areas. Especially in terms of infrastructure, we do not have a strong, reliant and cost effective transportation system. If the government's investment in such areas increases, employment opportunities will increase. Additionally, infrastructure will also be created. We need to identify areas in which we can be self-reliant. Increasing investment in agriculture, medicine, education, housing and health will improve the living standards of the people. Right now we are just living in a shambles, but there is no certainty that people will be treated if they get sick. How many ventilators do we have? Nowadays, it is necessary to work on how to establish good health posts, hospitals and develop infrastructure at the district and local level. This will provide quality services to the people at the local level as well as reduce costs. At the same time, there will be multifaceted benefits such as better living conditions and job creation at the local level.

Misunderstandings about banks and financial institutions
The general public as well as industrialists and in some cases policy makers have misconceptions about banks and financial institutions and this has been spilled on the surface from time to time. At present, the government and industrialists have been demanding that the bank should regulate or curb it by making huge profits. Banks and financial institutions should also be treated as business entities or firms. Profits and losses are calculated according to the size of the business. The banks has been mobilizing a large amount of public deposits and mobilizing loans accordingly.

The risk is the same and the shareholder's investment is the same. Banks and financial institutions are mobilizing not only crores of deposits taken from the people, but also crores of investments of lakhs of shareholders. Each bank has an average capital of over Rs 12 to 13 hundred crores. It also has to be rewarded equally.

At great risk, financial institutions invest money taken from the public. The bank has to be able to invest that money safely and return the deposits to the people whenever they want. It is important to understand that they make a small profit by deducting interest on deposits and other expenses. NRB has regulated the banks, not allowing them to charge more than 4.5 percent interest rate spread. Entrepreneurs have demanded that the problem of everything can be solved only by reducing the interest rate and this is not justified and possible. Everyone is in trouble because of this pandemic and lockdown, but it's not going to solve the economic problem of businesses if each business is given the same relief. It is important to pay attention on how to save every business by doing respective case study, for which NRB should further empower the banks on provisioning and restructuring of loans, as well as, allowing them to take other measures.  

Our economy has shrunk because of the lockdown. The state should think about how to invest in infrastructure by taking soft loans from international financial institutions and invest it through local banks. It is also very important to reduce all commercial banks’ cost of funds. If all this is done, the banks will be empowered to help. We should move forward in unity rather than accusing each other. By doing so, the government can collect revenue from which the state can operate. Expenditure is huge not only for the government or industrialists but also for the banks. In this difficult time, there is no alternative but to move forward together rather than turn against each other. Nowadays, it is important to think about which areas have potential. It is a very wrong practice to disturb the business environment by accusing each other.

Businesses, banks, and regulators should support each other. Those who have taken loans from the banks have started protesting saying that the bank should reduce the interest. Banks alone cannot do so. Therefore, in the coming days, there is no alternative but to move forward in unity.

Decision of interest rate discount
At present, the regulatory body, Nepal Rastra Bank has directed to reduce the interest on loans of all businesses by 2 percent. It is important to study how this pandemic has affected each of the business sectors. Without decreasing the cost of funds for the banks how are they to give this discount? Additionally, today banks have been directed to give a 2 percent discount, tomorrow they could be directed to give 4 percent or more discount to businesses. How will the banks afford this? The bank does not have its own money, they will have to pay its depositors. Bank’s ROE is not high either, this will also affect lakhs of shareholders as well as the stock market. This pandemic and in turn the lockdown, has affected businesses across the board. However, not everyone has faced the same level of losses, nor can all businesses recover in the same manner. It is necessary to study the balance sheet and other condition of each business and provide relief accordingly. Currently, the government has announced 2 percent interest discount on loans. Is this enough for all businesses? The government should deliver according to the nature of the impact. How to get out of this unprecedented situation? Every day something new is happening. Times are extremely challenging and dynamic. The policies of the government need to be dynamic in such a world. We need to keep a close eye on what is happening around the world. If we stick to the same policies it may not work. We need to keep revisiting our policies time and again. 

Disputes in management and the board
In recent past, we have witnessed friction between the board and the management regarding the issue of interest rate in some of the banking and financial institutes. The regulator has specified the functions, duties and rights of the board and the management. Every organization has its own management style. In the bank lead by me, there are no such issues between the board and the management. Banks and financial institutions will be run by the management. This is a very sad aspect of the kind of conflict that has emerged between the management and the board. Banks should at all times maintain trust of the people. Which should be further strengthened during such difficult times. One must speak very responsibly on sensitive issues. It is important for everyone to rise above their own selfishness and move forward honestly.

At a time when the world is being attacked by this pandemic, banks and financial institutions are not immune. Banks and financial institutions also need to cut their expenses and invest in productive sectors. Banks and financial institutions have been helping others in every calamity. And they will continue to do so. But one needs to change themselves with time. Those who can seize the opportunity given by time move forward as leaders. Banks and financial institutions have faced troubled time and again. Their perseverance depends on how they operate. We can also easily overcome this problem if the banks moves forward hand in hand with its customers and the regulators facilitate appropriately on time.

Banks have to cut costs
According to the financial statements of the third quarter of the banks, the income has decreased exponentially, but the expenditure has remained the same. Banks need to move forward with the times and promote the use of technology. At present, the regulator has directed the banks to open more branches and maintain infrastructure accordingly. This needs to reviewed. The banks can cut costs by leveraging technology. The service can be provided at the customer's doorstep through mobile or tab banking. This will go a long way in reducing manpower as well as reducing costs.

In present time, the regulator should adopt dynamic policies to recognize technology in terms of security and legality and promote its the use. In neighboring country, India, it has been made easier to open a bank account by simply using one’s Adhaar card. Of course, wherever we have citizenship, the question of its authenticity has been raised. Therefore, the state should invest in infrastructure of digital Nepal. By using this, banks and financial institutions and other service providers should be able to provide excellent service and consumers should also be able to get service remotely. Banks and financial institutions should not be seen only as an employer. If the expenditure is increasing due to having more manpower, then it should be replaced by technology and the manpower should be used in the productive sector.

Dynamic relief package required
Many third world countries, including India, have now come up with huge relief packages to keep the economy afloat. Instead of introducing a relief package as such, we could also look at different dynamic packages that could be released over time. Announcing one package might not work, especially since we do not even know the kind of economic destruction this pandemic has caused for us. Therefore, for the time being we should release some level of relief package. However, the government should start preparing to soon announce generous relief packages in the near future. 

The amount of relief given by the government today will eventually be collected by the government in forms of tax and other fees. Given the current situation, entrepreneurs need this relief package to operate their businesses and industries. However, looking at the larger picture, eventually government will need this same money to be returned to them in form of tax and fees to be able to keep the economy running and government functioning. The government's efforts to revive industry and business should be seen as an investment, not simply as a relief package. If the government can act in time and bring in rehabilitation programs, it can increase revenue as well as infrastructure development. Our Prime Minister's goal of a happy Nepali, prosperous Nepal can be achieved through this.


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