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Nabil Surging to be Bank of 1st Choice

Today, Nabil Bank has in a unique position in the banking industry in Nepal. As the nation’s first joint venture bank with 23 years of operational experience, it should have a greater insight into the market, risks, opportunities and customer needs. And the recent performance reflects this. But what about its Mission statement to be the “Bank of 1 st Choice” for all its stakeholders: customers, shareholders, regulators, communities and staff? Though all the information to asses against all these parameters is difficult to gather, the main indicator of profits and market share clearly show that it is surging on the right direction (see the table).

NABILBank Anil Shah, Chief Executive Officer, of Nabil says: “To achieve this mission, we, as Individuals, a team and an organization believe in delivering excellence to our stakeholders in an array of avenues, not just one parameter like profitability or market-share. This is reflected in our statement of commitment to always be ‘Your Bank at Your Service’ which is a clear reflection that our stakeholders are at the core of everythinsg we do. The entire Nabil team embraces a set of values that we call ‘CRISP’ representing the fact that we consistently strive to be Customer Focused, Result Oriented, Innovative, Synergistic and Professional.”

Evaluating the performance, Anil Shah says, "We have been able to achieve these unprecedented results because of our focus and dedication towards our Mission Statement to be the Bank of 1st Choice of all our stakeholders." Obviously, the bank's first stakeholders are its customers. And the increase of the bank's deposits by 20.6% to Rs. 23.34 billion and loans by 19.8% to Rs. 15.90 billion is a reflection that more and more customers are choosing to bank with Nabil, says Shah. Shareholders are the next stakeholders and Shah cites the consistent increase in the market price of Nabil's shares (par value Rs. 100), from Rs. 715 in 2003 to NRs. 5,050 in July 2007 as reflecting the confidence that the shareholders have on Nabil as a true blue chip investment.

Regulators are the other key stakeholders and Shah claims that in the 1 to 5 scale CAMELS rating, the Nepal Rastra Bank has given Nabil a score of 1.80 following the last inspection. A score of 1 and 2 means there are very few supervisory concerns for the regulator while banks with a score of 3, 4 or 5 means moderate to extreme degree of supervisory concern.

As regards to the service to the communities, the next stakeholder identified by the Nabil, Shah says the bank is following the three pillar approach covering Health, Education and Sport. Under this, the bank is cooperating with Tilganga Glaucoma Center, Mary Ward School and Nabil Three Star football club. "And our final stakeholders are our staff our team, and today Nabil is proud to be able to attract and retain the very best bankers in Nepal to ensure we continue to Surge Ahead as the Bank of 1st Choice," says Shah.

Anil Shah Chief Executive Office Nabil Bank Ltd.

The Bank has seen unprecedented growth in all its key performance indicators over the past four years as is reflected in the graphs:

Deposits: From 2004 over the past four years, the bank's total deposit base has grown by 65.32% reaching over Rs. 23 billion by the end of the last fiscal year. A large fully connected branch network, ATMs, internet banking solutions and card products offered by the bank provide the deposit customer a unique proposition of service and security, leading to this impressive growth in the bank's deposit base.

Loans & Advances: In the last four years, the bank has enhanced its loans and advances book by 86.02% to end the fiscal year with a portfolio size of Rs 15.9 billion. This increase has come both from corporate lending as well as the large scale market penetration the bank has successfully made in the retail lending sector.

Along with this, the bank has maintained the quality of its loan portfolio as is reflected by its low Non Performing Loans to Total Loans ratio of only 1.1%. This clearly shows that the bank has a Credit Policy that understands the risks which prevail in the Nepali market and allows it to maximize business opportunities whilst mitigating risks. Therefore, the bank has been able to ensure a quality growth of its risk asset base.

Profit Before Bonus & Taxes: The bank has also been able to translate the growth in business volumes into profits. The Profit Before Bonus & Taxes of the Bank has risen from Rs. 729 million in 2003/2004 to Rs. 1.10 billion in 2006/2007, an increase of 51.03%

Share Price: This impressive growth in business volumes and income has had a direct impact on the share prices of the bank, which has increased from Rs. 1,000 in 2004 to Rs. 5,050 at the end of the last fiscal year. The Bank has issued 4,916,544 shares with a paid up value of Rs. 100 each. Therefore, this increase of 405% in the share price over the last four years reflects an increase in total shareholder wealth from Rs. 4 billion 910 million to Rs. 24 billion and 820 million, resulting in an enhancement of total shareholder wealth by Rs 19 billion 910 million.

Strategy

As Shah recalls, the figures shown in the graphs are results of the massive exercise commenced some five years back after a board decision to bring about a paradigm shift in the way the bank operated.

"The first thing the bank realised was that to truly change something it would have to start from the core and as the very backbone of the bank is the technology platform on which it operates it was here that the bank initially concentrated. In line with this, the Bank migrated to an international standard banking platform Finacle from Infosys. This allowed it greater stability in its systems and enhanced the ability to centralize its core database and facilitate any branch banking for its customers along with centralization of operations," points out Shah.

With the technology in place, the Bank restructured itself by putting in place an organizational structure that best utilized its systems as well as provided it the maximum flexibility to capitalize on opportunities and mitigate risks. Shah claims that now the bank has in place a structure that avoids any conflict of interest when reviewing credit applications by dividing the credit risk analysis and marketing roles into two separate units. Along with the establishment of some new branches the bank also set up the Personal Lending Unit and entered the consumer loan segment in a large scale. Realizing the need to give greater levels of service delivery to the top end of its deposit relationships, Nabil Bank established the Privilege Banking Unit.

Similarly, as Shah adds, the bank centralized operations into the National Processing Center whereby ensuring that the skill sets reviewing all operational functions are of the highest level and a standard approach is utilized when processing a particular transaction no matter where it originates. Trade Finance business, which offers great opportunity but is also fraught with great risk due to the multitude of regulations and guidelines, both national and international, was centralized by the bank in the Central Trade Operations, so that the best resources look into and process all trade transactions no matter where they originate from.

Nabil’s Financials Fiscal Year 2006/2007

(Figures are provisional & unaudited for the fourth quarter of the year)

The Bank’s core capital has reached NRs. 2.51 billion as on 16 th July 2007
The Bank’s net worth has reached 2.56 billion, as of 16 th July 2007.
The Bank’s Capital Adequacy Ratio on Core Capital and Total Capital is 13.11% and 14.65% respectively as of 16 th July 2007, which exceeds the statutory requirement by 7.61% and 3.651% respectively. The bank has also started taking the required initiative in implementing the Basel II standards.
The Bank has been able to maximize shareholder’s wealth at a spectacular rate. The market price per share has continuously increased to NPR 5,050/= on 16 th July 2007.
The Bank has recorded profit after tax of NRs. 686 million in FY 2006/07, a growth of 8% compared to the previous year’s NRs. 635 million. Similarly, the Bank’s return on average assets and return on equity was 2.5% and 37% respectively in FY 2006/07. These ratios are above international standard and one of the highest in the domestic industry.
The Bank has a total deposit base of NRs. 23.34 billion and its total lending stood at NRs. 15.9 billion as on 16 th July 2007 whilst its NPL is just 1.12%.

The question arises : where and what next for Nabil Bank now? To this Shah's reply is long but straight: "I think every realm and part of Nepal is currently affected by the developments in the political arena. In the context of changing political scenario we have realized that the banks in Nepal need to play a bigger role by expanding the horizon and reaching out to the rural part of the country - to build bridges, to promote and enhance an inclusive economy. With this vision we are in the process of establishing several new branches this year in phase wise batches. This is expected to facilitate our commitment to further our services to the entire populace with our outreach covering all the major cities and rural areas of Nepal. Nabil Bank, as the first joint venture bank to commence operations in Nepal, was the Bank which 23 years back brought international standard banking to the nation. Now we stand poised to spread this level of banking service throughout the nation. For the sustainable success of our bank, the team is consistently reviewing internal and external developments to ensure that we identify, understand and make calculated decisions on any risk, credit, operational or market risk, which we take. Today, just identifying and avoiding all risk is not going to give us sustainable success. The ability of the individuals in the team at various levels, their understanding of the tangible and intangible factors affecting us and our customers and our collective ability to deliver customer delight, manage risks profitably today and into the future is what will ensure we are truly the Bank of 1st Choice for all our stakeholders."

Kist’s Growth Strategies

With an impressive 56 percent growth in the net profit in the fiscal year that ended on July 17, 2007 and doubling of the paid up capital to Rs. 200 million just recently (thus becoming the finance company with the highest paid up capital), Kist Merchant Banking and Finance has clearly set the target to become a development bank in the near future. The minimum capital requirement of Rs. 640 million to become a development bank is not far away as the balance amount can be raised within a couple of years by issuing right shares in a proportion of 1:1. A really impressive feat for a company started only four and half years ago. Its contemporaries are left far behind.

Kist Kist claims the highest position in finance company group also in terms of the number of staff (42), number of depositors (more than 10,000) and the size of deposits and lending. Another distinction of Kist is holding five annual general meetings within four years.

Behind the achievements are some unique operational styles of the company.

For one, the company is perhaps the most modern in terms of its customer service and use of high technology. For example, the impressive three-and-a-half-storied office building owned by the company standing on more than two ropanis of land at Anamnagar of Kathmandu has almost everything operated automatically. The front gate is remote controlled and the visitors have to pass through a check-in machine. The waiting area for the visitors has free internet and cable TV facilities and the clients don’t need to run out to get their papers photocopied or to get their picture taken to affix on various official documents. These are provided in-house and free of cost. Equally interesting is the basket of sweets on each office table to be enjoyed free by the visitors as well as the employees. And the company’s high officers say all these don’t add to the cost much while the impression on the customer is substantial.

Matching the technology is the human resource of the company. While the top management team consists of MBAs and CAs, even the errand boy is high school graduate.

And the human resource is controlled in a drastically different style than the other companies. None of the 42 employees of Kist are allowed to be associated with any other employer, not even a teacher. “They are all retained on 24 hour basis, available for the company at any time within 24 hours,” says company chairman Prof. Hirendra Man Pradhan. And the recruitment is done by a committee of the staff without any interference by the board. The salary is fixed by the staff committee itself. “The result is that the staff committee ensures every colleague they add to their team is the best available in the market and most appropriate for the team,” adds managing director Kamal Prasad Gnawali. The record shows that 33 percent of Kist staff is ladies and 33 percent is from the Janajatis thus making Kist one of the most inclusive institution in the country. The entire telephone and fuel bills of the staff are paid by the company. Surprisingly, Pradhan and Gnawali say that this is not a lavish expenditure because the contribution in productivity is much higher than the cost. And the figures substantiate it (see the table).

Kamal Prasad Gnawali Managing Director KIST Merchant Banking & Fin. Ltd

One significant innovation Kist has introduced is the loan against educational certificate. Though such schemes started by the government in the past have failed miserably as almost none of the borrower repaid the loan, Kist’s scheme is quite successful. “So far not a single Rupee is defaulted on our loan against educational certificates,” says Gnawali.

Recently, Kist became the fist finance company to offer ATM services, branded as Kist Self Service Banking (SSB). Two ATMs are already installed for Kist clients to withdraw and deposit money free of charge. As Kist’s ATMs are linked to Smart Choice Technology (SCT) network, the clients can use any of SCT ATM though for that service they have to pay a charge. And Kist is trying to be the first finance company also in providing locker facility to the clients. The request is pending with the central bank for permission and the plan is to start this service from the central office.

Financials of Kist Merchant Bank
Rs. in ‘000
	2002-03	2003-04	2004-05	2005-06	2006-07
Paid up Capital	30000	30000	50000	88995	200000
Net worth	27847	32984	57015	101989	238775
Deposit & Borrowing	61600	212267	450148	750038	1443644
Loan & Investment	75242	231868	472604	796633	1317343
Total Interest Income	2624	20825	47059	79188	134430
Total Interest Expense	1366	11915	27315	44366	78961
Operating Profit/Loss	1234	8019	17987	35601	37015
Net Profit/Loss	(2153)	5137	9260	16506	25781

Kist is already deep in remittance business by partnering with all the major remittance institutions from Western Union, MoenyGram, Prabhu, Xpress Money, Instant Cash to EzRemit and major banks like Bank of Kathmandu. Last year, Kist appointed Puskar Shah, the famed Nepali world traveler on bicycle, as its brand ambassador for remittance business. Another innovation is the Khutruke saving scheme targeted to the children and the women and which can be maintained with Rs. 100 minimum balance that attracts good 6.25 percent interest to the depositor. Kist has already become a member of the Clearing House of the Nepal Rastra Bank. As a result, the cheques drawn on Kist are acceptable to the commercial banks as well. Another recently started business is Indian currency exchange.

Kist In its geographical business expansion drive, Kist has opened branches at Kathmandu (in addition to the head office), Pokhara and Butwal. On the cards are two more branches in Kathmandu and two in eastern Nepal.

About the ongoing situation on the financial sector, the Kist senior officials warn of some impending danger as well. Indian banks are offering very high interest rate to the depositors and that is causing a lot of capital flight, they suspect. Moreover, in the existing situation there is good opportunity for interest rate arbitrage also by borrowing from the commercial banks and depositing it with the finance companies and the finance cooperatives. “That may be one of the most important reasons why banks are making profit while the industries and farmers are not borrowing much as they are not increasing production,” they warn.

United Finance Doing things differently

Despite the ongoing disturbances in the overall business environment of the country, United Finance Ltd. (UFL) recorded 77 percent growth in its after-tax profit according to the unaudited financial results of the company for the fiscal year that ended on July 17, 2007. It has been a substantial improvement over the previous year when the profit growth was 58 percent. This year the company has become more ambitious and gone for expansion of the services by entering new business and announcing new products. The company has promised that these new businesses are going to be conducted in a manner quite different than that of the other finance companies and banks that are providing similar services.

United Finance The major new business started is SME loans. However, as the banks too have introduced SME loan as separate product, UFL is trying to be different on this. As Sanjeeb Bhattarai, General Manager of UFL says, the company will be targeting small sized businesses and entrepreneurs who are not reached by commercial banks. “In doing so we would not be competing with banks. And this strategy will help us also to partner with the banks so that we will be able to leverage on their experience.” According to Bhattarai, the target is that SME loans will account for 20 percent of total loan portfolio of the company.

The strategy is simple. “We wanted to enter this segment because in it the loans and advances are not terminated frequently,” says Bhattarai. In other segments such as hire purchase, the loans are terminated very quickly. “For example if you give hire purchase loan for five years, next year 20 percent is repaid. To attain 30 percent growth next year, you have to achieve 50 percent growth in reality,” explains Bhattarai. “But the business loan would be revolving. For example, if we provide half a million loan to a small business unit for working capital it will be renewed next year as per its requirement. In doing so, if we attain 20 percent growth next year that will be a net increment,” he adds.

Another new business started now is merchant banking, a business that UFL was licensed 12 years back when it was established. There are about seven players in the market providing this service. However, UFL authorities say this again is going to be different from the other finance companies. To provide better service under this product line, the company recently hired some qualified and experienced professionals.

Promoted by the Chaudhary Group and Morang Auto Works, UFL has already emerged as a market leader in consumer financing. And the result has been reflected in the impressive growth in profitability, particularly in the last three years. Net profit, size of loans and deposits and earning per share (EPS) all have increased substantially in the recent years (see table).

According to Bhattarai, UFL is planning to increase its paid up capital to Rs. 100 millions from the present Rs. 60 millions by issuing bonus or right shares in the current fiscal year 2064/2065. The shares of the company are actively traded at the NEPSE and have been categorized in Category "A" by NEPSE for the last three years.

The credit for this outstanding result goes to unique working style of the UFL. Though UFL is among the 72 other similar player in the market, Bhattarai claims that it has differentiated itself from other financial institution in terms of product line and working style. "We too are involved in retail financing like housing loans, auto loans and home appliances as other finance companies but we have a niche market which include very common people and we have done specialization on that," says Bhattarai. UFL believes in both push and pull sale concept of marketing and it not only pulls it client through advertising but also reach upto them personally. So UFL have taken each of their products as sales product. In this way, we are able to give personal touch in our service, claims Bhattarai.

Sanjeeb Bhattarai General Manager United Finance Ltd.

For that UFL has developed highly specialized credit marketing team under different unit of hire purchase such as motorcycle, four wheeler, home appliances and housing. Similarly, it has also equally specialized loans and advances proposal appraisal team. There are separate teams for separate portfolios. Similarly, there is a specialized credit recovery team for each separate portfolio. All the teams are provided with targets. "Till now we have achieved more than the targets. For example, in the last fiscal year, we had set the target of Rs. 800 millions for loans and advances and we achieved Rs. 815 millions. We had to limit the overdue loans to Rs. 12 millions but it was limited to Rs. 9 millions," informs Bhattarai. By the end of this fiscal year, the company aims to increase its loan and advances to Rs. 1500 millions.

Currently, the company's NPA is 1.02 percent down from last year's 2.47 percent which is far below the norm of 5 percent set by NRB. This low rate of NPA is outstanding looking upon the nature of retail financing. Hence the system we installed has done a great job, says jubilant Bhattarai. "This is a peculiar atmosphere of UFL which is not seen in other finance companies though it may be common in the commercial banks," he adds.

Financials of United Finance
Fiscal Year	Loans & Advances	Deposits	Net Profit	EPS
2061/062	Rs 530 m	332 m	Rs 8 m	Rs. 13
2062/063	Rs 580 m	427 m	Rs 12.7	Rs. 21
2063/064	Rs 815 m	494 m	Rs 22.5	Rs. 38

UFL is also looking to expand its area of operation by opening up branches outside Kathmandu valley. "This year we are thinking of establishing four branches outside the valley. While expanding we are considering the concept of rural banking," informs Bhattarai, "We want to operate in those areas where there are development of physical infrastructure but not highly urbanized," he further informs. In such areas, there is demand for loans because there are various cottage industries and agro-businesses growing. So UFL has a strategy to explore and capture such nascent market.

According to Bhattarai, the operational strategy would be similar outside the valley as within the valley, namely specialization over a niche market. It is because various banks have already announced their own plans for expanding their business to rural area and there will be very fierce competition also in those localities. "We feel that what has worked within the valley also will work outside the valley," says Bhattarai.