Banks not feeling depositors’ pulse

FEB 24 -

Ajay Shrestha is the chief executive officer of Bank of Kathmandu. He talked to The Kathmandu Post about his bank’s current financial situation and challenges facing the banking sector: Excerpts:


How is the financial situation of Bank of Kathmandu as of the second quarter of the current fiscal year?


Our net profit grew by 31 percent as of the second quarter of the current fiscal year compared to the same period last year. This is a good achievement at a time when the banking sector is facing troubles. Our branch expansion drive also slowed this year resulting in growth in profit. However, the big challenge before us is to sustain the profit growth, as the spread rate is decreasing, risk of defaults is increasing and branch expansion cost is also going up.


What are the major challenges facing the banking sector currently?


Banks’ failure in raising deposits has resulted in liquidity crunch in the banking system. The current liquidity crunch is also a result of the government’s failure to spend development budget as the fiscal budget was introduced late. There is a risk that real estate sector will fail to repay loans. In my point of view, realty traders, who are waiting appropriate time to sell land, may not be able to hold land for a long time as they also have to pay interest to banks. There are also possibilities of fall of realty prices.


The non-performing loan (NPL) level of BoK has increased in the second quarter compared to first and the same period last year. Is it due to realty loan defaults?

No, we are not facing repayment problems from the realty sector. In fact, payment form real estate and housing sectors is better than industrial and small and medium scale enterprises (SMEs). Actually, our NPL level went up because we reassessed the quality of loans more conservatively and made provisioning of loans which could also be considered good loans. Our lending to realty sector, including housing, stands at just 17 percent of the total loans. It is just 10 percent in the realty sector alone.


Why are banks failing to attract deposits?


I think it is mainly because of banks’ failure to offer deposit products as per the depositors’ demand. This is the main reason behind depositors shying away from banks.

We witnessed a growth of 25 percent in deposit accounts after we introduced micro-saving and micro-fixed account scheme last year. Development banks and cooperatives are attracting deposits because they are offering products as desired by the market.


Many bankers say that deposits are not coming to banks due to the anti-money laundering provision. What do you say?


This provision may have affected banks’ deposit collection, but I do not think this the main reason. Banks are more focused on attracting deposits from a few big depositors and they have failed to cater a huge market remaining outside the banking access.

What is the reason behind the decline in deposits in your bank in the second quarter?


We are reducing the size of institutional deposits at high interest rates. It is not good to accept deposits at high interest rates, as this will compel banks to charge high to borrowers. This will also be risky for banks and the economy.


How have NRB guidelines on service charge affected the banking sector?


The guidelines on service charges have prevented many banks from offering new products having better services.

I think the measures put in place for maintaining transparency in service charges are ok, but fixing prices for certain services is not a good move in the competitive market.


Do you have any merger plan?


We are open to merger. The policymaker is promoting merger aggressively and it will create a better environment for mergers. However, the NRB’s lone effort will not help. The government, NRB and Securities Board of Nepal should work together for providing benefit comprehensively to encourage merger.

Posted on: 2011-02-24 08:58
http://www.ekantipur.com/2011/02/24/business/banks-not-feeling-depositors-pulse/330056.html