Mega Bank Nepal Ltd was established four and a half years ago with 'Halo to Hydro' or 'Banker of Every Nepali: From Plough to Power' as its motto. During this period, the bank has managed to expand its consumer base in the small and micro enterprises (SMEs) sector. The bank's CEO Anil Shah says the bank has extended almost half of its around Rs 20 billion in total loans to clients in the non-corporate sector. The bank's net profit almost doubled last fiscal year.
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Sagar Ghimire of Republica sat down with Shah to talk about the bank's journey, challenges, its merger process it is currently undergoing, and other banking issues. Excerpts:
The bank started with 1,290 promoters spread over 63 districts and included middle-level Nepalis who wanted to be a part of the financial sector revolution that was going on at that point of time.
So their aim was, of course, to turn it into a profitable financial institution that provided dividends while also wanting to promote financial inclusion.
Today, we have thousands of customers who are at the bottom of the economic pyramid to whom we have given crores of rupees through Mega Micro Banking initiative. A majority of our clients are not big corporations, but micro consumers, and those involved in the retail business and SMEs, most of them women. We have even actually set up some of the groups. Over 50 percent of the loans -- out of a total of Rs 20 billion -- that we have given are non-corporate loans. The focus on consumer lending and SMEs is because of two reasons: while financial inclusion is one of the objectives specified by our promoters, I also see the risk and reward better over there.
Your bank carries the motto 'Halo (plough) to Hydro'. An extensive part of the bank's lending portfolio includes small-level businesses. Why has it not been able to finance large-scale mega projects like those infrastructure and hydro power programs?
The biggest reason for this is that there has not been any project where we can finance. One reason the big projects are not coming in is because investors interested in such big projects seek stability in the country. Big projects need timelines. In a country which does not even have a constitution, where there is so much political instability, no one is going to put money in the projects of longer terms.
All the business houses are doing short-term businesses. We cannot start projects ourselves but have to wait for investors to come up with their projects. If their projects and cash-flow look okay and they are willing to pay the interest rates we are looking at, we finance them.
Sometimes people tend to think interest rates are too high, liquidity is too tight, or other things which have been keeping the big projects away. That's not the case at all. The 'Halo' clients are there whether there is constitution or no constitution, stability or instability and power or no-power, they do their business.
The big ones are not doing theirs but the smaller and medium-level businesses are doing their projects. That's why our focus has been at the lower end rather than the top. The good thing to come out of all this is that it has given us the time to plan and be ready to take advantages from now for our bright future.
Against the backdrop of liquidity surplus in the banking system as well as other various regulatory headwinds, how has the past fiscal year been for Mega Bank?
The past fiscal year was challenging. If our clients cannot do well, neither can we. Political instability, labor problems and power shortage, among other problems, affected all our customers.
This had a contamination effect in our balance sheet. It was challenging because the level of confidence between our regulator and the banking sector as a whole went down for some reasons or other emanating from both sides.
They (the central bank) continued to be a good regulator. But, any relationship is sometimes high and sometime down. The up and down relationship also had a dampening impact on the banking sector. We also distributed bonus shares for the second time -- 12 percent on a capital of Rs 2.33 billion. This was phenomenal compared to other banks who had offered 50/60 percent bonus shares during their second dividend distribution when they had just Rs 50 million in capital.
Your bank has initiated a merger process with Paschimanchal Bikas Bank Ltd (PBBL). What is your aim for pursuing a merger with a regional-level development bank?
The philosophy behind the merger that we started with PBBL is to merge with a development bank that has a regional footprint. We want Paschimanchal and we want one in each development region so that we have a footprint there and maybe 60 to 70 branches spread across Nepal; regional offices in all five development regions and a 'Mega dream'. Whatever we do, we should do carefully and not rush in. Because merging an institution is a most complex thing -- we need to merge people, culture, thinking and risk appetite -- we have to be very careful. So we want to make sure that we get it right, so want the first one to be a nice one. In the coming years, you will see a few quick mergers with Mega Bank.
We have got Chiranjibi Nepal as the new governor of Nepal Rastra Bank. What are your expectations from the new governor of the central bank?
The step (amendment to the provision of the circular for the implementation of 5 percent provisioning for loans under watch list) he has taken has shown that he is there for the private banks and the entire financial sector and has helped build confidence. The second thing he has to do is to enhance the level of governance. Those who do wrong must be punished, but not everybody.
Governance should be enhanced by adopting a carrot-and-stick approach. If we ourselves undergo self-regulation, NRB will be a facilitator under the current governor. But if we do not and delude ourselves that we have a private sector-friendly governor and do whatever we like, I am convinced the governor will turn into a dictator overnight. When he was the chairman of the Securities Board of Nepal (Sebon), he showed that he was free market-friendly but that if you abused his friendliness, he would do what a regulator should and can do. The challenge for us (private banking sector) is to choose whether we need a central bank that is a facilitator or a dictator.
