This commercial bank is making its mark in a number of areas including digitisation, expansion and best banking practices.
Generally, it is hard for mofussil institutions in a country like Nepal where entities from the capital valley get all the privileges to grow. However, there are a few organisations from across the different parts of the country challenging this notion. Machhapuchchre Bank Limited (MBL) is one such institution that has not only proved its worth but has also shown remarkable performance.
Established in 2000 in Pokhara as Class ‘A’ commercial bank commencing its operations as regional commercial bank from the country’s western region, MBL in 2012 merged with Standard Finance Company Limited. Currently, the bank has Rs 8.05 billion in paid-up capital and 800,000 customers. MBL maintains a good deposit composition with 67 percent of non-institutional deposits and 33 percent in institutional deposits. “We never breach any regulatory requirement of CCD (Credit to Capital and Deposit) ratio. Our banking performance and our deposit mix is so healthy and the risk associated to it was very low even during the subsequent liquidity crises that have occurred over the last few years,” notes Suman Sharma, CEO of MBL. According to Sharma, the bank’s good corporate governance, transparency, prudent banking practice, monitoring and follow-up mechanism and adherence to all compliances of the central bank are the key factors driving MBL to its position today. Sharma claims that stakeholders perceive MBL as one of the sound and strong banks for its highest level of best banking practices.
Though the bank was established as a regional commercial bank in Pokhara, some of the functions of the head office were carried out from its branch at Putalisadak, Kathmandu from the bank’s commencement. According to Sharma, the major investment activities had to be done from the capital valley as the central bank is headquartered in Kathmandu. It’s been only two and a half years since MBL shifted its head office to Lazimpat from Pokhara.
Despite a good beginning, the bank in the early 2010s went through a difficult period. For around 13 years, the bank ran smoothly until its profitability plummeted in 2012. “Some of our bigger loans were defaulted before seven years. Due to this, the bank’s non-performing assets (NPAs) went at a very high level and the profitability declined significantly. So, there was no smooth journey in the past,” says Sharma.
The bank changed its course from July 2012 after Standard Finance merged into MBL. The merger provided the bank with opportunities to grow its capital base, expand its branch network and focus on new avenues of investment. Prior to the merger, the capital adequacy ratio (CAR) of MBL was near 10 percent which held it back in terms of expanding its business. “Performance of MBL was very low during that time and the capital base of Standard Finance Ltd was high though its business was low. While merging, the new promoter Mahato Group was also investing in Standard Finance. So they became one of the major investors in the bank,” recalls Sharma. The merger proved to be a turning point for MBL with new management at top and revised board structure. Its NPA came down year-on-year and thus the bank started to grow stronger in terms of capital base, retail deposits and overall business.
Sharma who joined MBL as Deputy CEO in 2014 has witnessed several progress stories over these years. Till now, the Bank has managed to increase its deposits to Rs 90 billion and extension of loans to Rs 78 billion which were around Rs 22 billion and Rs 16 billion, respectively, at the time of merger. Similarly, the composition of retail deposits of 67 percent is one of the major achievements of the bank. According to Sharma, MBL has successfully managed to keep its NPA level below 0.5 percent for the last two years. Even when the country’s banking system underwent a tight liquidity situation during those years with higher interest rate situation where loan default is expected to remain high, the bank maintained its NPA at around 0.37percent last year.
Ever since its inception in 2000 as a commercial bank in Pokhara region, MBL never limited its services to a particular region. It has been expanding its footsteps to provide banking services to customers across the country. Currently, the bank operates 136 branches in 54 districts. The number was 86 last year. The bank plans to add four more branches soon.
Besides, it has been providing services to its customers through 112 branchless banking units, 152 ATM outlets and two extension outlets. At present, around 1,250 well-trained staff work at the bank. The bank aspires to offer its financial services to business enterprises scattered across every nook and corner of the country. In-line with the county’s federal system of governance, MBL is also going through a provincial set up by opening provincial offices that have supportive teams to look after loans, deposits and the bank’s overall business.
Products and Services
MBL has a wide range of banking products and services in its portfolio including Smart Bachat Khata, Students Savings Account, Auto Loan, Packaging Credit, Education Loan, Mobile Banking, debit card, credit card, any branch banking and internet banking, among many others. Moreover, the bank is all set to launch a unique product related to the credit card decision making tool through which people can directly apply for credit cards online and get instant approval. MBL has been working on this for the last six months to apply Artificial Intelligent developed in-house. This will also to reduce the application and documentation processing time. “For this, we have devised a module developed by an in-house team to forecast the probability of default and find out which segment is safe,” explains Sharma. According to him, customers will have to go to the nearest MBL branch to get the credit card after their application is approved instantly.
Also, MBL has tied up with Sakchyam Access to Finance Programme and Heifer International Nepal to finance small and medium enterprises (SMEs) and women entrepreneurs.“We have introduced credit card facilities for SMEs and other specific groups like women and students as they are good customers for us in the future,” shares Shrestha.
MBL is engaged in a number of community level activities as part of its corporate social responsibility (CSR). “We engage in CSR without any expectation. We conduct such activities for noble causes helping society,” says Sharma. The bank has been helping the needy and underprivileged in various fields such as education, healthcare and other social programmes. According to Sharma, MBL handed over disaster prevention kits worth Rs 5 million to Nepal Police last year.
“Merging with another bank having a similar set up, branch network and business will not provide additional synergy.”
With the latest merger and acquisitions (M&As) push by NRB, the Nepali Banking Sector has entered into a new phase of consolidation. How do you view this development?
We have formed a board-level merger committee to explore merger possibilities with other banks. We are looking into it positively. However, a merger between banks is not an easy affair. Merging with another bank having a similar set up, branch network and similar type of business will not provide additional synergy. It just creates overlapping or duplication of the branches in all locations. Yes, there will be an increase in the capital of the bank, but it is not the single aspect that matters. Good corporate governance, management practices are also necessary. So, a forced merger should be applicable to those banks that are weak in transparency and best banking practices. Otherwise, mergers should be voluntary for banks that have been running smoothly. The mergers need to be managed in such a way that the banking institutions get synergy.
MBL is among the banks that have submitted a merger commitment to NRB. How is the bank working in this regard?
It would be better to go into a merger at the regional level where our presence is low. Therefore, we are exploring this so that it can provide us the required synergy. For this, our board had formed a merger committee four months ago. Normally, the committee has tenure of three months. We have extended its tenure for three more months. The committee is exploring merger possibilities and is engaged in talks with some commercial and development banks. We had even examined how the scenario would be like while merging with a development bank. We found that almost 50 branches will be overlapped in similar locations. Relocating branches is not an easy task and it will be very costly as well. So relocating, rebranding and again managing all those 50 branches will be costly and time consuming. These processes could delay our pace of progress rather than giving effective outcomes. Moreover, it interrupts our core focus and main objective. However, we are negotiating with some banks currently.
Lately, the increasing use of technology in the financial sector has become a major challenge for banks. How is MBL keeping up with the latest trends in financial technologies to provide efficient services to its customers?
We use the t24 software (also known as Globus Banking System) which is one of the top three global banking software systems. We are at the brink to adopt digitalisation for loan management which enables us to engage in all loan related works from origination to documentation after a loan application is approved. We are also in the process of starting a call centre to answer the queries related to our services from this year and improve customer service. We also developed software for AML CFT for our internal use.
The last few years have seen a recurring shortage of investment grade liquidity in the banking sector on a cyclical basis. How is MBL coping with this problem?
The shortage of loanable fund is beyond the control of one bank; it is the problem of the industry rather than a bank. We have taken a far-sighted approach regarding this particular issue. We gradually expand our business rather than aggressively when the shortage is likely to occur. We adopted cautious measures when we realise the signs of a looming crisis are near. Normally, large institutional depositors such as insurance companies, Citizens Investment Trust (CIT), Nepal Telecom etc, with bargaining capacity also want to maximize the interest rate on their deposits. When their bargaining capacity increases, the bank’s interest rate also increases. So comparatively, a 33 percent institutional deposit is also a big segment, though the composition percent is below 50 percent as allowed by the central bank. Though we are less vulnerable compared to other banks, it is a systemic risk.