Modern banking challenges & opportunity
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Modern Banking: Challenges & Opportunity #Nepal #Banking #CommercialBanks #Profitability #Leverage #Liquidity #NRB #Rastriya Banijya Bank #Agricultural Development Bank #Nepal Bank Limited
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Modern banking challenges & opportunity
- 1. Modern Banking Krishna Niraula, Sr. Account Officer (CA, ADBL) Challenges & Opportunities Monday, March 7, 2022
- 2. Coverage of the topic Achievements in Modern Banking Current Status of Banking in Nepal Challenges Opportunities Krishna Niraula (CA)
- 3. Achievements in Modern Banking in Nepal… Financial Access: 750 out of 753 local levels More than 67% of population have bank account Deposit to GDP ratio and Credit to GDP ratio improved) Concept of "Brick Banking" to "Click Banking" institutionalized Digital Banking Products: Eg. Mobile Banking Users more than 1.6 crores National Payment Switch Basel III implementation More than 30% of total loans towards productive lending Simplified Interbank transaction Application of ESRM Guidelines for environmental protection Public Confidence strong towards banking and financial system Discourage in informal economy Interest rate spread competitive and customer friendly (4.4% for "A" class) Open market operation effective for liquidity management Krishna Niraula (CA)
- 4. Achievements in Modern Banking in Nepal First Financial Sector Development Strategy (2073/74-2077/78): Brief glimpse • Increase in capital base from 2 billion to 8 billion • strong competition between banks and average interest rate spread decreased to 3.5% • Long term bonds issued by banks as directed by NRB • Increase in credit card users from 68966 in 2074 Ashadh to 192,370 in Ashadh 2078 • Increase in mobile banking users from 24,38,222 in 2074 Ashadh to 12,638,366 in 2078 Ashadh • Out of total loans, banks have invested 13.2% in agriculture, 6% in energy, 10.1% in MSME sector till 2078 Ashadh • Increase in financial access of commercial banks, i.e. from 1869 branches in 2073 Ashadh to 4753 in 2078 Ashadh, and commercial banks have now access to 750 local levels out of 753. • NPL of commercial banks 1.41% compared to 1.82% in 2072 Ashadh • Minimized credit risk despite huge increase in credit of commercial banks • NFRS already implemented in banks as per international accounting standards Krishna Niraula (CA)
- 5. Current Status of Banking in Nepal Class A B C D E Total BFIs 27 17 17 67 1 129 Branches 4,856 1,065 248 5,046 11,215 Population per branch (A,B & C) 4924 Population per branch (A,B,C & D) 2709 Deposit (billions) latest 4890 Credit (billions) latest 4693 CD ratio (latest) 90.26% NPL ratio 1.31% Deposit Accounts (crores) 4.18 Loan Accounts (lakhs) 18 Mobile banking customers (crores) 1.62 Debit cards (lakhs) 98 Deposit rate (commercial banks) 6.37% Credit rate (commercial banks) 9.44% All data other than latest data are from NRB Monthly report, Poush 2078 Krishna Niraula (CA)
- 6. Current Banking Challenges… • Materialize the facilities for the merger of commercial banks • Business culture differences • Power Sharing • Employee Management • Business Expansion Strategy • Data migration • Accounting & taxation related issues • Liquidity Management • Rapid expansion of credit (12%) compared to deposit (only 3%) • Capital Expenditure of government lower than expectation (currently only around 19%) • Decreased remittances (decreased by 5.5%) till Poush 2078 and reached Rs. 468 billion • Increased imports (51.1% increment and reached nearly Rs. 1000 billion in 6 months) whereas exports increased by 95.5% (but volume only Rs. 118 billion) • Current Account Rs. 354 billion negative, BOP Rs. 200 billion negative • Foreign Exchange Reserves sufficient to import only for 6.6 months (last year it was 12.6 months) Krishna Niraula (CA)
- 7. Current Banking Challenges • Poor Access to Finance (only 18 lakh loan accounts) • Increased credit risk weighted exposure (Challenge to maintain capital adequacy) • Maintaining loan quality post Covid 19 (overfinancing during covid period) • IT Risk Management • Frequent policy fluctuations by NRB • Decreased income margin on fee based services • Unfair competition resulting in decrease in spread rate (only 3% spread currently, Poush 2078) • Directed Lending compliance • Resource Management for long term infrastructural lending • Flying deposit to informal sectors and cryptocurrencies • AML/CFT • Basel III (full implementation challenge) • Business expansion in rural local levels Krishna Niraula (CA)
- 8. Current Banking Opportunities… • Digital Banking expansion post covid 19 (Huge Nepalese became used to in digital banking products) • Big Merger of Commercial Banks (Policy relaxations by NRB Monetary Policy) • 1 year relaxation to comply directed lending • CRR & SLR reduction (2.5% from 3% & 9% from 10%) • 5% increase in per institution deposit limit • 1% relaxation in interest rate spread • 1 year relaxation in CD ratio • No approval for branch expansion within 1 km • NRN Deposit for increasing deposit through online account opening • Foreign Exchange Borrowings for subsidized resource management • Long term Bonds, Preference Shares for long term financing • Financial Literacy Programmes for increased financial access • Merchant Banking transactions for income increment Krishna Niraula (CA)
- 9. Current Banking Opportunities • Basel III implementation for prudent banking • Banking products matching with resource for sustainable profit • Branchless Banking, Ghumti Banking, for rural deposit collection • KYC and KYCC for AML/CFT • Talent Hunt for professionalism in work • Value Added Services within NRB regulation for business expansion Krishna Niraula (CA)