“We will continue to be a flag-bearer for Nepal”

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 “We will continue to be a flag-bearer for Nepal”

Standard Chartered Bank Nepal Limited (SCBNL) has been in operation in Nepal since 1987. This is the only international bank currently operating in Nepal. In an interview with New Business Age’s Sagar Ghimire, SCBNL’s CEO Anirvan Ghosh Dastidar talks about the impacts of Covid-19, possible shifts that the pandemic could cause and the bank’s priorities, among other issues. Excerpts:

How do you assess the impact of Covid-19 on the overall banking sector?
The impact on the banking sector is not yet over. It's moving because there are fears of second wave of coronavirus transmission hitting the country. This has affected the whole travel industry. After the pandemic hit the country last year, the banking sector had excessive liquidity in the system and the credit growth was subdued. Another thing is about the issue of cyber security because a lot of things went digital. There were a lot of regulatory reliefs including moratorium [on loan repayments]. There were a lot of stressed industries which needed banks to step up to help them with their installment payments.  So, the whole issue is around risk management.

One of the big leaps was beneficiaries’ move towards digital technology. Take ConnectIPS. If you see the flow through ConnectIPS in terms of transactions, it's almost a billion rupees a day. Move towards digital technology, subdued credit growth, a lot of liquidity in the system, awareness and a heightened scrutiny around cyber security. I would raise some of these issues. And, the impact is not yet over even though things are getting back on track.

Don't you think that the quality of loans or non-performing loan (NPL) ratio deteriorated due to the pandemic and lockdown hitting the repayment capacity of borrowers?
Though I am not an expert, I think the quality of loans in Nepal somehow stands out. If you look at Nepal's NPL level, it's comparatively very low even today despite the pandemic. Broadly, the industry’s average NPL is not more than 1.2 percent. This is relatively low. So, the default rate in Nepal is historically low, even lower. The NPL is not an issue in the banking industry yet. Banks have managed that. But, talking about the loan growth, it is. If you look at the CCD [credit to core capital cum deposit] ratio of banks, the average is 78 percent. So, imports are back. The credit flow is back. We feel certain sectors of the economy are getting back to 2019’s level.

We are yet to see the second wave in Nepal. The government has lifted the lockdown and started vaccinating people. Do you see any signs of recovery in recent weeks?
If you look at Nepal and go out on the streets, do you feel there is a second wave? Everything is open. People are attending work. We are taking precautions, but gradually people are getting relaxed. I don't know if we will have the second wave in Nepal. But, we are looking at India very closely because it was the porous borders last time which led to the surge in the Covid-19 cases and a lot of our imported cases largely came from across the border. But in terms of where the economy stands, look at the GDP growth that is predicted to be anything between 1 and 2 percent this year and going back to the level of 6 percent in the following year. Compared to our peers in South Asia, Nepal is a happy problem. This is because economic activities are growing, remittances are at an all-time high and foreign exchange reserves are at a record level.

Covid-19 has caused uncertainties, upended many businesses and changed the way people work. What major shifts do you predict in the banking sector?
One is that this uncertainty is going to be a certainty. All of us, whether we are in business or banking, have reconciled to the fact that this is like a dry run. Today it's Covid and tomorrow it could be something else. So, how do you make the uncertainty part of your vulnerability assessment? That's the first thought. Second, you take the range of things: the way you work, the way we interact, the way we come to office, flexible working and work-from-home.

A lot of these things have changed, and our sense is that these things will not go back completely. If you look at us, we don't go to Nepal Rastra Bank anymore. We set up meetings in our laptops. We call our clients virtually. Even today, almost 30 percent of our staff work from home. Hours of working have become flexible. These all are not going to go away. A lot of things have changed. And, the digital adoption. That is a big lesson learnt. It's not that brick and mortar will go away. Human interaction will still be required. But, it still will be a combination.

You said that the NPL is not a big issue for now. But, there are concerns that restructuring and rescheduling have provided a relief for borrowers. Don't you think their repayment capacity will be hit once they are withdrawn?
It will be sectoral. The biggest impact for Nepal is on the travel and tourism sector. There is relief across sectors because every industry is impacted. The regulatory reliefs outlined by the NRB have been well accepted, followed and provided. We don't see any issue. There are a lot of loan restructurings happening. Right now, whatever relief programme is there, it has been already provided and continues to be provided.

You talked about the excessive liquidity in the banking system. But, the central bank in its monetary policy introduced measures including lowering the cash reserve ratio to pump liquidity in the market.  
What I said was during the pandemic. I have already clarified that. As things stand today, credit flow is back. We have a CCD ratio of 78 percent and it is almost going back to the level of 2019. Credit demands have picked up. There could be a crunch later. What happens in the second half of the current fiscal year is yet to be seen.

The banking system sometimes faces an acute crunch of liquidity and sometimes it is a surplus. This has also made interest rates volatile. How do you see this recurring problem?
It's cyclical. It’s always been cyclical, and the industry has managed. This has never been an issue. The only thing it changes is in the margin of the interests. Nepal will have to diversify its financial market. You need a capital market and a bond market. Right now, there is no hedging mechanism for some of our deposits and interest rates. Till we create a parallel financial system in the economy, this cyclical system will continue. I don't think interest rates will rise so quickly as earlier because the net interest spread is anyway capped. Look at the base rates of banks. It will not go back to the levels of 2019. From that point of view, regulatory reliefs have already come to consumers. I don't think we will get back to those kinds of margins and interest rates anymore.

Please briefly share with us the latest financial performance of Standard Chartered Bank Nepal Ltd.
Our second quarter’s publication [financial report] is public. Our performance in the second half of the local financial year will be far better. Obviously, it took us some time to recover from the lockdown and the pandemic. We are one of the highest capitalised and highly liquid banks in Nepal. We are a very efficient bank. We have one of the lowest base rates.

In the second half, you will see our balance sheet being ramped up significantly. We are AAA rated and that is largely because of our capital and liquidity. This year’s performance will obviously be not on par with last year’s. But we are setting a foundation for the next couple of years in terms of the way we are growing our balance sheet.  

Have the bank’s strategic priorities for Nepal changed in the post-Covid scenario?
Our priorities for Nepal have not changed. We are still committed to this market. We are the only international bank operating in Nepal. In fact, if you look at our offices, we have renovated this whole place after Covid. We spent money. We are also committed to complying with the government rules in terms of specified sector lending like in agriculture and energy sectors. In the post-Covid operating model, we are really looking at ramping up our business in sectors like climate change which is a very big agenda to the bank globally.

We have certain commitments in line with the Paris Climate Agreement. For us, energy is big. Bringing in multilaterals, risk participation and sustainable financing is big. Our commitment and our growth aspiration in Nepal will continue.  Maybe it will be more sectoral, more defined. We are also looking at new ways of working digitally and bringing application programming interfaces (API) based banking. So, our plans remain pretty focused.

Do you think the rapid adoption of digital banking spells the end of brick-and-mortar banks?
India has moved rapidly towards the adoption of the technology. Do we have branches there? We do. In Nepal, the payment space is moving rapidly. Do people need branches? Yes. We still are very much a cash-driven market. Look at the parallel economy. Look at the queues in the bank branches. Everybody has got eSewa or a digital wallet on their phones. But, still there are people in all branches. Both will survive. As we have a very young population here in Nepal, we see a lot of enablers in terms of e-commerce and payments like QR code or other methods. But, my belief is that the shape and the nature of brick and mortar will be redefined. No longer will you have bank branches with 10 tellers or counters. You will still have branches with a lot of digital avenues for doing day to day banking. Commercial sector will still need branches for trade, cash and other services.

My view is that digital is a very big word, and has become fashionable. What does digital mean? There are some conveniences you want on the phone. During lockdown, for instance, everybody wanted money, but not the hard cash because people were not going out. But, you needed to make some payments. The convenience was ordering things, getting deliveries and making payments. That was the convenience that clients in Nepal were looking for. That space is changing rapidly. But, it will be a combination of both for sometime

How seriously do you take the risk of banks becoming vulnerable to cyberattacks?
I can say it in one word: very serious. It is always a heightened agenda and high-risk agenda for every bank to be cautious and have a firewall or system to protect against any compromise.

Many domestic banks see SCBNL as a role model for compliance. Do you think compliance cost is high in markets like in Nepal?
The cost is its cost of doing business for banks. For international banks, the cost is even higher. The cost of capital and the cost of compliance are the two biggest costs for banks which are like the cost of doing businesses if you want to be safe. As an international bank, we have a lot of experiences--good and bad-- and having worked with multiple regulators, we are able to bring that expertise. So, we are ahead of the curve in terms of risk management system or practices. We work very closely with Nepal Rastra Bank on bringing in best practices because we also want Nepal to prosper and do well. The issues surrounding bribery, corruption and money laundering are very big for all markets. So, it is a cost that you cannot compromise with it.  

Nepal Rastra Bank (NRB) has been enforcing specified sector lending (SSL) requirements that bankers loathe. How difficult has it been for the SCBNL to implement them?
Firstly, SSL has a lot of sectors including agriculture and energy sectors. The government has aligned these with its national priorities which is good. I don't think that banks are at loggerheads with the regulator. We are in the process of fine-tuning. There are a lot of sectors like infrastructure, travel and tourism. So, SSL can be widened in its scope. Banks should participate because it's the issue of the economy and nation building. I don't think we have a problem in spirit in that we should participate.

I think fine-tuning is required also in terms of target setting. There are demands and supplies where you set a target that may not align with the supply or demand. Then, there will be a gap. Broadly, SSL is an important agenda which we recognise and we are committed to. There needs to be some fine tuning. Otherwise, it's a good agenda for a country and it also helps banks channelise their balance sheet to the sectors which we need the most.

But, there are banks and CEOs who complain that such regulations are indicative of the central bank’s approach to micromanage banking institutions. Do you agree?
No, I don't think so. I have worked in many markets and with many central banks. The intention with which the central bank has brought these regulations is not necessarily what the banks recognise. Nepal Rastra Bank is very collaborative here and very open to discuss any idea. They listen. They engage. They do keep fine tuning and updating the monetary policy every now and then. So, it's a moving agenda. The intent they brought is very genuine. We understand that. It may not suit our purpose always. But, the good thing in Nepal is that the Rastra Bank engages very closely with banks and listens to them. I don't agree that the central bank micromanages banking institutions. It's a very healthy and collaborative way of working together.

It seems that the SCBNL is struggling to meet the central bank’s requirement for a commercial bank to keep its interest spread rate at 4.4 percent. Why is this so?
I do not know why you see us struggling as we have always met the interest rate spread cap. Spread will evolve because banks in Nepal are on the standardised approach which means they are not yet in Basel III. As risk-based pricing comes into Nepal, the spread rate regulation will change eventually. Right now, being an efficient bank, Standard Chartered is, in a way indirectly, getting penalised. But, we understand why it is being done. Hopefully, the regulations will change as the market progresses.

Many foreign investors shy away from making investments in Nepal citing various regulatory hurdles, political and policy instability, high risk and lack of market. As the only international bank that is present here (since 1987), what would be your response to them?
We have been here for 33 years and we are committed to this market. There can't be a better proof than Standard Chartered Bank. Are we shying away from investing in Nepal? No. We have been through this country through an insurgency, earthquakes and all other crises. We have not left Nepal. There are challenges including political instability and changes in the government. One of the roles we play is to tell investors to come and invest in Nepal using us as an example. We will continue to be a flag-bearer for Nepal. Many countries have their own issues. Nepal is still a very good destination for investment. The market is slowly opening up.

Last year, the Bank launched its global programme “Futuremakers by Standard Chartered” in Nepal. Please tells us about this initiative and the progress.
Our theme is around sustainability, financial literacy, livelihood and women entrepreneurship. In different countries, we aligned future-makers with certain parts of the society which is relevant to the country. In Nepal, there are trafficked and rescued girls. How do we give them a livelihood? How do we teach them financial literacy? How do we make them independent? That’s what the future-maker programme is. In India, we have programmes for people living in slums and children for their education. Different countries have different themes. Broadly, the cornerstone of future-maker is sustainability, financial literacy and livelihood. It's not just charity where you give money.

Standard Chartered Bank Nepal says that its diversity is its unique strength. What are your initiatives—both internal and external—to support diversity and inclusion?
Name me one bank besides Standard Chartered Bank Nepal which has a woman as its chairperson. Can you name one? Name the Chief Financial Officer (CFO) of any bank who is a woman. For us, it's not only about gender, colour, creed, background, sexual orientation and physical abilities are equally important aspects of diversity. Diversity is important because it allows a different thought process, not stereotypes. This also helps bring diverse opinions or views to the table.

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