Financial sector getting stronger, professional

When Nepal Arab Bank — current Nabil Bank — started its operations some 28 years back in July 1984, in Nepal, there were only a few banks and financial institutions like the partially government-owned Nepal Bank and completely state-owned Rastriya Banijya Bank.
But in the last three decades, the country has witnessed a surge in the number of modern private banks and financial institutions also due to the liberal economic policy post-1990.
"In recent years, the banking system has become stronger despite issues of good governance," said chief executive of Nabil Bank Anil Gyawali. "Besides quality institutional development, with time, both the players and regulators have become more professional," he said, adding that the increasing number of banks and financial institutions have been catering to the basic needs of the urban populace.
However, there is another side of the coin too, as the increasing number of institutions in the same pie has increased the pressure on profit, forcing the banks and financial institutions to go over their capacity, said the banker, who started his career with Nabil Bank in 1984 but then went on to join City Bank branch in India in 1996.
As a career banker, Gyawali also opined that there are challenges in the banking sector. Apart from governance, there are challenges of credit quality and increasing crunch of human resources, which according to him have to be addressed immediately to maintain a robust financial system. "Otherwise it could lead to operational risk," he added. "Similarly, the financial system is facing a growing challenge of regular power outage and costly rents as they have increased operation costs."
Currently, the banking and financial system is under pressure due to deposit surplus too. "Due to low confidence among entrepreneurs, lending has slowed down," he said, adding that if the entrepreneurs were confident, they would have discovered new sectors to borrow for, and the banks and financial institutions would not be sitting on deposits. "The pressure is building on bottom line and the profit growth rate will come down due to the stress."
However, the banking and financial sector has been giving good returns, said the chief executive of Nabil Bank, which saw its share traded at Rs 1,460 per unit today.
"Depositors and investors must be more vigilant and they should not expect high dividends every year as banking is a long-term business, and putting pressure on short-term gains will put pressure on the whole financial system," Gyawali suggested.
With almost three decades of history, Nabil Bank — that has posted Rs 1.51 billion profit after tax by this mid-June — is the benchmark setter, he claimed, adding, "With local management, the bank has departed from the traditional banking system and introduced more innovative products in the market."
With its total asset size of Rs 66.25 billion, Nabil has a deposit base of Rs 56.04 billion and operates from 48 branches and 77 ATM outlets. Its Non Performing Loans stands at 0.95 per cent of the total lending of Rs 42.57 billion.