It has been two years since Joseph Silvanus assumed the role of Chief Executive Officer at Standard Chartered Bank Nepal (SCBN). The Kathmandu Post caught up with Silvanus to talk about the new monetary policy, its impact on the domestic banking sector, and SCBN's new endeavours. Excerpts:
How do you view the new monetary policy the Nepal Rastra Bank unveiled on Sunday? Will it address the issues in the Nepali banking industry?
Considering the fact that the kinds of levers available for the central bank are rather constrained and/or limited, they have put together a reasonable package. Nepal's inflation is largely driven by supply side constraints. SLR and CRR are the only tools through which systemic liquidity can be regulated.
Banking regulators globally are looking towards increasing the resilience of the banking industry and one pillar is clearly improving the capital. I won't talk much about productive and deprived sector because this is something mandated by the government. However, in the area of deprived sector, the absorption capacity by the bottom of the pyramid people is not that much and we are perhaps incentivising multiple lending and over indebtedness.
Productive sector, you have read what industry stalwarts tell you; they are willing to work in hydro or infra. But I can tell you today there are so many deals which banks have signed, but there have been some issues or the other around — either the implementing partner or promoter or equity etc. If you look at the deals underwritten and not disbursed, it is quite a large figure. However, the continued focus on the productive sector is appreciable.
The Nepal Bankers Association (NBA) has reservations over the provision in the policy that talks about prompt corrective action (PCA) against banks and financial institutions (BFIs) failing to maintain adequate liquidity and spread rate of five percent. Your take on this.
Both are relevant issues. These are measures that you take in very mature economies where banking has delivered the fruits of financial inclusion and access to finance. In Nepal, the real private sector or banking or modern banking has a history of about three decades only. So you have to give it time.
Such measures tend to penalise efficient banks. Everyone knows our cost of funds and the base rate index are the lowest in the industry. By capping the interest rate structure, you are seen as promoting inefficiency and creating an equitable structure when the need of the hour is creating sustainable private enterprise and entrepreneurship reflecting realistic cost of capital. Interest rates are best left to the market forces so that a risk-based pricing can be applied while keeping a reasonable spread over the base rate.
With the new monitory policy in place, how do you predict the outlook for the current fiscal year?
If you mix the monetary policy with the budget, mixed reactions are there. The industry requested for some tax waivers, incentives for mergers and acquisitions. The Finance Minister has broadly spoken about it, but he hasn't clearly spelt out.
If capital infusion is made mandatory, more and more institutions will have to merge, so I see a lot more discussion on mergers happening during this FY. Mergers aren't easy and are at best convenience agreements. I think it will be a year of consolidation for the banking industry, also the year to wait for the Basel III as mentioned in the policy. Whether more banks will merge is still a question.
The policy states introduction of 'Dynamic Provisioning'. For us, it's a part of our day-to-day term. It could be a new terminology for Nepal, but hopefully the central bank would provide more guidance on its implementation. Nonetheless, it is a step in the right direction. The governor is trying to tighten prudential reporting and regulatory norms because it is important to provide factual data on a balance sheet.
Now a generic question — how is Standard Chartered doing? How would be the results for the last fiscal year?
Under the prevailing socio-economic and political framework we have done well. The wellness yardstick is no longer single measure, but indeed multidimensional metric.
Yes, our bottom line has grown reasonably well. We are in the close period, so I can't really share the numbers. But look at other aspects — our capital adequacy ratio of 14 plus percent, our assets-to-deposit ratio, our NPA levels, our liquidity ratios. These are not only robust, but the finest in the industry.
You take the area of cost of funds — we are the cheapest in the market and are efficient. In terms of return on equity, we are among the top three, and in terms of return on assets, we are among the top two.
Our price earnings ratio is the highest at 32 times and the price to book ratio is over seven times; the closest bank would be around four times. So you can see how much investors value the SCBNL stock.
What are the new initiatives SCBNL will take this fiscal year?
We introduced several new products/service last year. For the first time in Nepal, a dedicated contact centre, a phone banking centre which is open 24x7 and 365 days a year has been instituted. For this fiscal year, we are thinking about introducing new and innovative products in the SME space, corporate banking and mortgage. We are constantly looking at bringing in new and innovative products from our global network to Nepal.
Often times we hear that SCB is thinking about pulling out from Nepal. How true is this?
It is absolutely untrue and to me it's a figment of someone's imagination that we should review our stance of doing business in Nepal. We are committed to this market and it is a bit disappointing that people and media are raising this issue when it is not true at all.
As the new monetary policy has extended the deadline for banks to increase their paid-up capital to the required level by one more year. But it also said BFIs would have to further increase their capital base in the days to come. As SCB has to increase its paid up capital to Rs 2 billion, how you will do it? Will you also go for merger or acquisition?
Standard Chartered Bank uses both organic and inorganic forms of growth. However, our focus has historically been in Asia, Africa and the Middle East — the growth footprints. In countries which are growing well, why would you want to go the inorganic route? It's very easy to acquire or merge an institution, but amalgamating cultures, people and system is a challenge. We are happy with the existing growth in Nepal. We can be aggressive, but it all has to be under the prevailing environment. We are happy with our stand here.
There were rumors before the monetary policy that the central bank would fix the size of the capital base. Drawing a line of Rs 5 billion or Rs 10 billion may not look consistent. If banks boards of directors understand the risks of doing business , they will certainly think about the capital base. So from that perspective, I will not be prescriptive and I am glad that the central bank is not prescriptive about it too.
Don't you think the central bank has become more assertive for the last two years when it comes to corporate governance? It has become more vocal and has taken more actions.
From what I see, I agree with you. The governor and his top team are speaking the same language; they are clear about it. That's a great win-win for everyone. But how that gets implemented on the ground in terms of recreating the board structures, the executive structures is the matter of deliberation and choice. But I really think the NRB has moved several notches in the area of providing better governance, better supervision standards also.
What are the pros and cons of being a CEO in a country like Nepal?
It is satisfying for a person like me to contribute my little knowledge in growing Nepali business . We are transforming the landscape of people, talent and skills because we employ the best Nepali resources and we invest in them, we upscale them.
If you see the banking landscape, most of the CEOs are ex-SCBians. It is very gratifying because then we no longer are competing but collaborating with each other.
Some of the challenges here I think is Nepali entrepreneurship is at an all-time low. This country should have given birth to several entrepreneurs because the god has provided this land with everything. Tourism is something you have been doing well. There are so many areas — water, medicine, plants etc. That should have been exploited and managed. Donor aid, grant everything is available. And when people are willing to put money on entrepreneurs, and still not to have this middle sector coming in with local ideas, it is a bit of a letdown. If political stability comes back, this country is second to none.