“Nice to be back”
After a brief gap, J Craig McAllister has come back as the CEO of Nepal Bank Ltd. (NBL) as his successor John Fitzgerald left the job complaining of lack of support from the Nepali authorities. What are McAllister’s plans now for NBL? His previous stint had earned him a lot of friends as well as foes due to his management style which has proved to be peculiar at least for Nepal. Excerpts from an interview:
Why did John leave Nepal ?
When John Fitzgerald assumed leadership at NBL, he had an experienced group of senior officers to work with to achieve very ambitious performance targets in the remaining year of the contract. At the end of 2006 those officers, members of the ICCMT, were planned to be converted into NBL employees. Unfortunately, this did not take place and John saw his most important management resources stripped away within a few weeks. He drew attention to the serious resource drain and the response he received was disappointing. Qualified and respected professionals, such as John, usually have alternatives. He was very disappointed with the responses he received so, as a last resort, he decided to go to a project where he would receive support more in keeping with his standards and expectations.
Does your return prove that you are indispensable to Nepal Bank?
Available is the accurate term. Indispensable — absolutely not. It’s nice to be back. I enjoy Nepal , NBL and the excitement of this project. On the other hand I really enjoyed my short retirement. I regard my present status as “taking a work break” so to speak. In all candor, at home I was beginning to hear the question “Don’t you have something to do Dad?” all too frequently.
Isn’t the current situation similar to when John left? How are you going to cope?
I think people have now realised that John’s concerns were accurate. We are working to rebuild the resources we need and I’m comfortable that we will have the managerial resources required to meet our mission. NBL staff members are rising to the opportunity and these recent events have sparked internal adjustments that are timely.
We lost seven of our top 10 people – people we expected to run the bank for many years – in just a few short weeks as their contracts were allowed to expire. It must have been very difficult for John to experience that migration and not have the support to stop it. However, many of the people we have trained at the bank during the project are very capable. Those staff members are stepping up and assuming responsibility. We have lost some skills that are in short supply throughout the market as well as in the bank. We will look outside the bank to fill some of our needs as well as looking internally. Given the project’s success, we can now approach the market more effectively than was possible in the past.
How changed did you find the bank’s environment in general as compared to when you left?
I find a big change in virtually everything. When I look at the commercial and business atmosphere in Nepal , there is a big change. On the one hand, there is peace which is absolutely wonderful. On the other hand, the requirements of peace and governance in the future are being sorted out leading to a great deal of uncertainty. I get the impression that it is incredibly difficult for our customers to plan for the long-term with any type of certainty. No one knows who is going to be in charge, who is going to be running what ministry, it’s not really clear yet what effect the newest political force that is joining the other political leaders will have. When you can’t make a reasonable estimate of what to expect in the future, it is very difficult to plan effectively.
The other change is that when I was here previously, the Parliament was not in session; it had been suspended. But now it is very active and I have never lived or worked in this country when it was under the Parliament’s control. I have been back for only a few days but I assume that there will be differences to what I experienced before when many of the political rights had been suspended.
Going by what the Central Bank reported in its mid term evaluation of this year’s monetary policy, we believe that in this last leg of the assignment ICC-MT has to prepare NBL for privatisation. What modalities are under consideration for this?
The project plan, as originally drawn before we even joined in July 2002, called for restructuring, recapitalisation, and privatisation. Restructuring is a long process, still underway but winding down. Even after the project is concluded there will be restructuring activities by the reconstituted NBL.
Preparation for recapitalisation is also in progress. The government plans to bring in an expert for privatisation and for recapitalisation - it’s a single operation with a two-phase process and each phase will have a number of steps. As for modalities, none of them are set yet. It will not be decided until the expert comes in. However, we are following the general pattern, i.e. we are getting the bank in the best shape financially and doing all the restructuring that will make it a strong and a desirable institution. The stronger the institution, the better the price and our objective is to get the maximum financial return from privatisation. So the specific moves and modalities are really up to the expert and the people working in the government.
Is there any time frame for privatisation?
From a technical standpoint, the bank could be privatised now in the sense that it’s back in good shape: it is profitable, the staff has been reduced and the major restructuring objectives have been met. The tasks still pending will be achieved on a timely basis. Probably the whole recapitalisation and privitisation process will take a year or a little longer.
The initial team with which you had started NBL’s turnaround has now been reduced to a very few persons. Do you believe that Nepal Bank has developed sufficient internal resources to manage the privatisation? Or will there be a new team to oversee this project?
Well, specifically, of the team that started in July 2002, I’m the only one left. Our team technically consists of Peter Ward, our Chief Credit Officer, and I right now.
Yes, I believe we have the internal resources to continue to manage the bank and those internal resources are “home grown”. Leaving aside the leadership loss I referred to earlier, and that requires immediate action which is underway, we have employees who are more service oriented, profit driven and risk averse than when we first took control. I would like to have seen things move more quickly in the early stages but we are further along than anyone expected at this point in the restructuring.
I have no doubt that we will be able to manage the process into privatisation. While it is difficult to anticipate all the specifics of what exactly will be required in recapitalisation and privatisation technically, we are a stronger organisation now. The entire bank is eager to get on with the final phases of the project, to co-operate with the government and the Central Bank and others to find “fit and proper” stakeholders and to make a positive difference in the financial fortunes of our customers.
What is your comment on the latest actions initiated by the government against blacklisted borrowers? How many of these 81 defaulters have approached the bank to settle their accounts?
I’ve only been back a short time. I’m still finding out. But I applaud the efforts and courage of the government. Of the 81 borrowers that were listed, we have started conversations with a few but it is rather early to say if the approaches are sincere – so far it is beginning to look good. Remember, every rupee we recover cuts the price of recapitalisation. So, if we take a little bit longer it’s not going to hurt that much.
And of the 81, I honestly don’t know who have started sincere dialogues but I wouldn’t identify them by name even if I knew. First, not all 81 are our borrowers. Secondly, I think in the next few weeks, we will be approached by many borrowers, not just blacklisted parties. The rules and regulations, being implemented, are appropriately strong and I just can’t imagine that someone would want to experience the penalties. The government has done a good job. Now the banks must move in a professional manner and the blacklisted borrowers need to face the reality of financial responsibility. When you borrow money from deposit taking institutions, that debt must be repaid and the contractual agreement must be honored.
So can we say that the environment in Nepal Bank has improved in comparison to previous years?
Definitely. We are receiving cooperation from borrowers who were just adamantly opposed to repaying their debts previously. Pushing our case in the legal arena, notwithstanding the good documentation, has been very tough but the introduction of the DRT has made a difference – it is a very positive step in the right direction. As I said earlier many changes have been successfully implemented and the staff has risen to the challenge.
Now there are different laws already enforced like insolvency law, new company law, etc. Are you aware of those laws being implemented and could they help the banks?
I think they will be very helpful to the entire economy. It’s not only new laws that are important but how the laws are implemented. A new law is just another regulation in a dusty book unless it is fairly and evenly applied and consistently followed up.
"PNB's cross-border expansion in SAARC will have to wait"
SC Gupta, Chairman and Managing Director of Punjab National Bank (PNB), the largest public sector bank of India, was in Nepal to inaugurate the 20th branch of Everest Bank Ltd. in which PNB is a joint venture partner by way of equity holding and technical collaboration. Meanwhile, the Nepali press had reported that EBL was mulling over acquiring Nepal Investment Bank and PNB was going to fund the acquisition. However, in an interview with us, Gupta denied the reports. Excerpts:
How is the business of the Indian public sector banks?
During last six to seven years, it has been very good. Public sector banks still control 72 per cent of the business. Earlier, public sector banks were always considered to have a laid back attitude. But I have found that during the last six to seven years, all public sector banks have been making operating profit and net profit. Ever since the public sector reforms were introduced, out of 19 public sector banks, 16 have already raised money from the capital market. All the banks have a capital adequacy of over 9 per cent.
The Reserve Bank of India (RBI) has been introducing many prudential norms since they felt that macro level development was not moving in the right direction; be it in the rate of interest, liquidity in the system or overheating in some sectors. Whatever the guideline, we find that the response of the public sector banks (as well as of the other banks) has been quite good and the compliance culture is improving. Profitability of all public sector banks is good and you can see this in the capital market. The banking industry has also been able to absorb many shocks. The most important feature I find is that the level of bad loans has come down drastically. Gross NPA is on an average below 3 per cent and net NPA is below 1 per cent now. Capital adequacy is on an average 11.75 per cent and profitability is increasing.
How is PNB doing?
PNB is the number one bank out of the 19 public sector banks in terms of deposits, advances, and the network of its branches. In total, we have 4,524 offices.
On the technology front, we have been able to bring about 2,400 branches under the 'Core Banking Solution'. Eighty per cent of the business is networked through RTGS (Real Time Gross Settlement) so we are at a technologically advanced stage. Also, we have a number of products in the asset and the liabilities side. And we have been able to develop a good marketing team too.
The most important area in which we are not doing very well, however, is our international presence. So we are considering opening branches at four new destinations. We have already filled applications in London and Canada to open subsidiaries: to maintain an offshore unit in Singapore and to open a full fledged bank in Hong Kong . Hopefully, all will be opened before the end of September this year. One may even be opened before May 31.
A lot of importance is being placed on the banking sector regulations in recent years. What is the situation in this regard in India and how does Nepal compare on this count?
In India , whenever regulations, guidelines or the changes in the prudential norms have been announced by the RBI, the response level has been very good. I may not know Nepal that well but as to the reports available, there is a lot to be done here and the banking system needs revamping, particularly in the government owned banks. Their NPA level of 35-40 per cent is not going to send the right signal. The banking industry is such that it helps the growth of the economy. So, they should take care of their bad loan portfolio. The government should come forward with a definite action plan to take care of this so that the banking industry should be on the right path in the next five to 10 years. Nepal should also become as strong as any other country in banking.
The cross border banking integration in the SAARC region is expected to speed up with the intensification of SAFTA implementation. What is PNB's plan to extend its presence in other SAARC countries in addition to Nepal ?
We will be taking steps to expand to SAARC countries and after we open branches in the four locations previously mentioned, we have a definite plan to extend our wings in other countries. This includes SAARC countries because we know that if we are to become globally competitive, cross border expansion is a must. But it will take time because it has so many ramifications which we have to address.
We have heard that PNB is looking to further expand its investment in Nepal . Would you mind giving our readers some idea about the plan?
Basically, we do not have a plan as such except helping those industries that have a strong base in India . If the Nepali government invites them for the purpose of setting up either some hydro or strategic industries, we would definitely help them in all possible ways. This would include financing them from one of the branches in India and through the Everest Bank Limited (EBL) in Nepal with whom we have a strategic partnership by way of equity participation. We could also provide specialised people from India to assist EBL to syndicate loans with regard to the new process likely to be set up here.
Recently there were news reports that EBL was in talks to acquire other banks and PNB was increasing its shares in EBL to finance this. Is this true?
No, I don't think there is any plan on PNB's part to fund the acquisition of a bank. PNB, within Indian borders, will always think about expanding by way of acquisitions. EBL is within its rights to do that but something good must come from the acquisition. You should not expand for the sake of expanding. There must be synergy, cultural similarities, similarities in technology, and it must make business sense so that through the acquisition, you become stronger. In such a situation, if there is a need of PNB to come forward to help in any way, either by increasing the share within the rules and regulations or obtaining board approval, we will help. But as of today, there is nothing tangible at hand. It is not that something is ready and PNB is funding EBL to acquire a bank. But definitely, discussions always happen. If something concrete happens, Mr. Jass, the EBL CEO, will be briefing you.
Is there any plan to increase the share of PNB in EBL?
For the time being, the answer is No. We just want EBL to remain profitable and take up more social responsibility by going to the rural and semi urban areas. Also, whenever it is felt that PNB can create value for EBL, we will always assist them.
PNB was also planning to start mutual funds here through a local subsidiary. Is there any progress?
We want Nepal 's mutual funds industry to grow. In that situation, if PNB can assist or help, in management or otherwise, we can do it.
