Efforts on to turn NBL healthy by FY16

NEPAL Bank Limited (NBL) is executing its recapitalisation plan and recently issued rights shares to increase its capital base. The country’s oldest bank is currently under the Nepal Rastra Bank’s (NRB) management, with the central bank’s director Maheswor Lal Shrestha working as the coordinator of the bank’s management team. Prithvi Man Shrestha of The Kathmandu Post talked to Shrestha about the bank’s progress in loan recovery and future plans: Excerpts: NBL recently issued rights shares to increase capital. How have been the subscriptions? After the Finance Ministry and Nepal Rastra Bank (NRB) approved our capital plan, we issued 1:9.5 rights shares to increase our paid-up capital to Rs 4 billion. We had planned to raise Rs 3.61 billion through rights issuance, but were able to raise Rs 3.33 billion, which is 92 percent of the target. Considering the rate of subscriptions in general, it is encouraging. We will allocate the unsubscribed shares through an auction process as per the existing laws. We will complete auctioning the remaining shares within mid-August. Who did not subscribe the rights shares among the shareholders? As there are around 12,000 shareholders, we cannot say who didn’t subscribe in definite term. But trusts and social organisations failed to subscribe. Of the rights share subscriptions, shares worth Rs 1.4 billion were subscribed by the government, while private sector shareholders subscribed shares worth Rs 1.93 billion. When will NBL turn into a healthy commercial bank? The process has already begun. As much as 90 percent of the work in this regard has already been completed with the issuance of rights shares. It is now time to see the results. We have expected to turn NBL into a healthy bank as per the criteria set by the central bank by fiscal year 2015-16. We have targeted to fulfil the capital adequacy ratio requirement of 10 percent plus 1 percent buffer capital by that time. We are also going to sell our unutilised fixed assets and retain the bank’s profit. We will sell fixed assets worth Rs 2 billion. We have already issued a tender notice for eight fixed assets in the first phase. We have already sold assets worth Rs 40 million outside the Kathmandu Valley. How difficult has been the process of selling the fixed property given the slowdown in the real estate sector? We are really facing difficulties in selling large land plots. It is probably because people buy property in big scale for business purpose. Due to the recession in the realty sector, we have not been much successful in this regard so far. Besides selling the property at competitive price, we have also initiated negotiations with cash-rich organisations. We have plans to sell out significantly this fiscal year. Even after a decade since financial sector reform programme was implemented at NBL, it is yet to recover fully.Why did it take so long to reform the bank? The reform process takes time and it is natural. But we have to see if the bank is heading towards the positive direction. The reform process has been taken forward with the bank’s own resources after initially taking foreign loans. The staff number has been right-sized so are the branches. People’s perception towards this bank has also been changing along with the reform initiatives. NBL is the bank that has the highest employee expenses against operating profits. What are you doing to reduce this ratio? NBL is the oldest bank of the country and it adopted traditional banking for most part of its history. Most of the commercial banks that came after NBL started their business with modernised and electronic banking system. That’s why they required less manpower compared to us. We are also trying to reduce the employee expenses. Older employees are now gradually retiring. About 1,500 staff will be retiring within the next three years, which will give us space for fresh recruitments. We have adopted a strategy of blending experienced staff and 400 new recruits, which has benefitted us. We are also in the process of installing new software which will further modernise the bank and requires less staff to do the same job. NBL still has a huge amount to be recovered from defaulters. What is happening on this front? We still have loans worth more than Rs 2 billion to be recovered from defaulters. We recovered Rs 700 million such loans last fiscal year. We expect to recover more than 50 percent this fiscal year. Maheswor Lal Shrestha Coordinator, Nepal Bank Limited Management Team