NIC Bank claims to be among few banks in Nepal to understand the financing requirements of small and medium enterprises (SME). It has launched innovative and structured loan products exclusively targeted at the SMEs.
Niraj Shrestha, General Manager of the Bank, explains, “The unique products and services that we offer to our clients have provided them with the much needed long-term capital to support their business growth, whilst also allowing flexibility to manage their day-to-day cash with opportunity to minimize idle cash and interest cost. The scope and range of our SME products are varied and our customers can choose the financing option best fit for their respective businesses.”
The Bank aims to be a niche player in the SME market and it has been taking different initiatives to expand its services to tap into different market segments. “We have recently signed an MOU with International Finance Corporation (World Bank group) under their South Asia Enterprise Development Facility (IFC-SEDF) to avail of their expertise, co-operation and support in enhancing our SME capacity and to expand our reach across the country. With our focused approach and initiatives, we have managed to build our SME portfolio to about 15% of our total lending within a span of about two years after entering this market segment in a structured manner. We aim to double this at least in next two years,” adds Shrestha.
In any market-based economy, whether developed or developing, SMEs are considered as an engine for economic development. In Nepal, SMEs are estimated to (a) constitute more than 90 percent of the total industrial establishments, (b) generate about 80 percent of non-agricultural employment and (c) contribute about 80 percent of the industrial sector’s contribution to the national GDP. Of the non-agricultural GDP, more than 60 percent is believed to be attributable to SMEs including micro enterprises. “Albeit its significance, the SME sector, however, is also considered the most disorganized and poorly managed amongst all businesses and most of these businesses are generally family-owned or started by people without any proper planning or professional intent,” remarks Shrestha. “Most small businesses have minimal or no banking relationship, work primarily with cash and finance their operations through the ploughing back of profit or informal financing (money lenders/friends/relatives).” These institutions are usually family businesses, run and managed by a couple of people taking full, hands-on responsibility for all aspects of the business. Although they know their businesses, they are weak at producing written business and financial plans. Moreover, management rarely plans their operations in advance, so when they require finance, they need it urgent. “Our understanding of these generic issues in the SME segment has given us an edge over our competitors in ensuring that we meet the needs and expectations of our customers to the fullest,” Shrestha further reflects.
NIC Bank has recently completed its 10 years of successful banking operations. With a humble beginning of its operation from Biratnagar in July 1998, the Bank has today expanded its reach and network across the country with 16 branches and over 50 thousand customers. It also takes pride in its relatively large base of 32 thousand plus shareholders. The bank has consistently bettered its performance, more so over the last six years following reshuffling in its top management. It has posted a whopping growth of 38 and 57 percent in its Operating Profit and Net Profit respectively for the fiscal year that ended on 15 July 2008 compared to the corresponding period in the last fiscal year. Its profit growth at a compound annual rate in excess of 40 percent in the past five years has been an example for other banks to emulate.
NIC is the first commercial bank of Nepal to receive ISO 9001: 2000 certification for Quality Management System. It is also the first bank in the country to be extended a line of credit by the International Finance Corporation under its Global Trade Finance Program. It is also a proud recipient of the “Bank of the Year 2007” award from The Banker, Financial Times, London within the short span of nine years after coming into operation. “We believe that the Bank of the Year award along with the recognition that we have been accorded by IFC and the ISO certification are testimony to our success, robust growth and the transparency and professionalism that we have consistently encouraged in all aspects of our business.”
Financial highlights
FY 03/04
FY 04/05
FY 05/06
FY 06/07
Unaudited
FY 07/08
Deposit & Borrowing
Rs mn
5,215.8
6,691.8
9,223.6
10,420.4
13,413.5
Risk Assets
Rs mn
3,743.1
4,909.4
6,902.1
9,128.6
11,465.9
Operating Profit
Rs mn
150.45
201.87
211.98
291.36
405.03
Net Profit
Rs mn
68.26
113.75
96.58
158.48
248.94
Return on Equity
%
11.6
17.4
14.1
20.7
22.7
Return on Assets
%
1.4
1.7
1.08
1.4
1.6
Net profit per employee
Rs mn
0.5
0.7
0.6
0.8
1.08
Cost to Income
%
35.5
31.0
32.7
29.5
28.0
Earning per share
Rs
13.65
22.75
16.10
24.01
26.6
Dividend (including bonus) on share capital
%
-
30.0
10.53
21.05
-
Cash Dividend on Share Capital
%
-
10.0
0.53
1.05
-
Talking about some pressing issues, one being high employee turnover in the Nepali banking industry in recent times, Shrestha explains, “This is nothing unusual. People with skills and aspirations do and should look for better opportunities and that mindset seems to be picking up fast amongst the younger generation of Nepali bankers as well. But we are not perturbed by the healthy turnover of our staff that we have lately experienced. Instead, we feel good that our employees are now considered capable enough to be recruited by much larger and more established banks.” He, however, also points out that there is a dearth of capable human resource primarily in the mid and the senior management levels in the banking industry.
Apart from its focus on SMEs, NIC Bank, according to Shrestha, will continue to maintain and grow a sizeable share of retail as well as corporate relationships offering a wide range of products and services. The bank is also exploring possibilities on commencing merchant banking services to cater to a wider spectrum of customers. On the liability front, Shrestha shares, “We are probably amongst the few banks in Nepal that have a designated team to specifically manage the liability side of the balance sheet. It is our ongoing effort to not only consistently raise meaningful new deposits but also to achieve a healthier re-mix of deposits.”
NIC has been consistently introducing new and innovative depository products. It has recently launched a Fixed Deposit account – the first of its kind in the local banking industry – with the highest interest rate (9% p.a.). Shrestha also observes that one of the key challenges for banks of late, especially for the new entrants, has been in terms of raising new deposits. Sharing his views on the much hyped capital flight that might have been there, he opines, “Though we have been hearing about this in different forums, I think this is something very difficult to substantiate. On the other hand, if one were to infer from the recent overwhelming over-subscriptions of IPOs of some companies, it can also be believed that a lot of money is probably being held by individuals (and not by banks). Notwithstanding this, there probably is also a need to match the interest rate here (or at least reduce the gap) in line with that prevailing in India for whatever worth it may be and the current trends do indicate that the market is indeed moving in that direction.”
NIC Bank is also fully committed to contribute significantly to the society at large as a part of its Corporate Social Responsibility. Shrestha explains, “We are probably the only bank in Nepal that has, as a policy decision at the Board level, been contributing a fixed share (0.5%) of our net profit every year for charity.” A separate charitable trust, NIC Foundation, has been duly registered to execute all CSR initiatives on behalf of the Bank.
Commenting on the mushrooming of banks in Nepal, Shrestha opines that whilst it may trigger some unhealthy competition in the short run, it can be expected to be good over a longer period. He says, “I think more the competition the better it is in the interest of both the customers as well as the banks as this is bound to improve the efficiency of the banks and thereby the choices and benefits for the customers too would be greatly enhanced.” He, however, says that there is not any yardstick to measure the exact number of banks that an economy requires but he does believe that in the Nepali context, there is a need for more stringent criteria when granting operating license to new banks. “There has to be a better “fit and proper” test in line with international norms in this regard. I am not saying these are not there at all but, at present, it appears that meeting the minimum capital requirement is the single most important eligibility criterion. For example, in India, people who are in business are not allowed to promote banks keeping in view the possible conflict of interest. In Nepal, it seems that this is not considered to be of concern,” he shares.
NIC Bank First:
1. First bank to receive an ISO 9001: 2000 Certificate for Quality Management System
2. First bank to receive ‘line of credit’ under Global Trade Finance Program from International Finance Corporation, World Bank Group
3. First to introduce savings account with life insurance cover
4. First to bring 99.9 percent pure Gold and Silver (Standard Chartered Bank is the second)
NIBL Leaps
Nepal Investment Bank Ltd (NIBL) has reported Rs. 698 million net profit in the fiscal year 2007/08 which marked a growth rate of 39 percent over the previous fiscal year 2006/07. In the previous FY, the bank had made Rs. 501 million net profit.
This profit is higher than that of the other big private sector commercial banks of the country such as Himalayan Bank, Nepal SBI, Bank of Kathmandu, and Nepal Industrial and Commercial Bank. Also the growth rate of 39 percent is higher among the top banks like Standard Charted Bank and Nabil Bank. For the FY 2007/08, the bank’s interest income has gone up to Rs. 2,194 million from Rs. 1,584 million of the previous year – i.e. nearly a 39 percent increase. Likewise, the bank’s deposit has soared to Rs. 34.45 billion in the FY 2007/08 compared to last year’s Rs. 24.40 billion. For the latest fiscal year, loans and advances rose by whopping 54.93 percent to reach Rs. 27billion, making NIBL the largest lender among the private sector banks of the country.
Financial Highlights over Seven Years (Rs ‘000)
2002
2003
2004
2005
2006
2007
2008
Deposit
4,174,800
7,922,766
11,524,680
14,254,574
18,927,306
24,488,856
34,451,726
Loans & Advances
2,713,500
5,921,788
7,338,566
10,453,164
13,178,152
17,769,100
27,529,305
Investment
1,822,162
1,705,240
3,862,483
3,934,188
5,602,868
6,505,679
6,874,023
Net Worth
523,468
638,542
729,048
1,180,173
1,415,440
1,878,124
2,686,786
Gross Asset
4,973,890
9,163,895
13,463,937
16,390,652
21,732,081
28,073,517
39,405,959
Share Price (Rs)
760
795
940
800
1,260
1,729
2,213
Earning Per Share (EPS)
33.59
39.56
51.7
39.5
59.34
62.57
57.87
No. of Share
1,699,845
2,952,930
2,952,930
5,877,385
5,905,860
8,013,526
12,039,154
In the midst of all these positive numbers, interest expense, i.e. the amount reported as an expense for deposits and borrowed money, has gone up by a substantial 44.68 percent, reaching Rs. 991 million, compared to Rs. 685 million in the previous year. However, compared to the interest expense, rise in the staff expenses has been lower - only by 28.74 percent, even though the number of staff has increased from 514 to 622. The other operating expenses have also gone up by 27.18 percent.
NIBL, once known as Nepal Indosuez bank, has shown high resiliency despite intense competition among commercial banks and challenging economic and political atmosphere. The bank made a remarkable transition in 2002 when the French investors sold their shares in the bank to a group of Nepali investors. After this Nepali group took over the management of the bank and changed its name from Nepal Indosuez bank to Nepal Investment Bank. Since than it went on to receive “Banker of the Year Nepal” twice during the past seven years, awarded by The Banker, a magazine of the Financial Times Group of London.
Financial Statement of Nepal Investment Bank Ltd.
Figure in NPR ('000')
2008/07
2007/06
S.N
(Unaudited)
1
Total Capital and Liabilities
39,409,138
28,073,517
1.1
Paid up Capital
1,203,915
801,352
1.2
Reserve and Surplus
1,574,848
1,076,771
1.3
Debenture and bond
1,050,000
800,000
1.4
Borrowing
-
1.5
Deposits (a+b)
34,451,726
24,488,856
a
Domestic Currency
30,601,002
20,844,082
b
Foreign Currency
3,850,724
3,644,774
1.6
Income Tax liabilities
23,964
295
1.7
Other Liabilities
1,104,685
906,243
2
Total Assets (2.1 to 2.7)
39,409,138
28,073,517
2.1
Cash and Bank balance
3,754,942
2,441,514
2.2
Money at call and short Notice
362,970
2.3
Investment
6,874,024
6,505,680
2.4
Loan and Advances
27,529,305
17,769,100
2.5
Fixed Assets
970,092
759,456
2.6
Non Banking Assets
750.00
1,125
2.7
Other Assets
280,025
233,672
3
Profit and Loss Account
3.1
Inerest Income
2,194,276
1,584,987
3.2
Interest Expenses
991,830
685,530
A
Net Interest Income (3.1-3.2)
1,202,446
899,457
3.3
Fees, Commission and Discount
215,292
163,899
3.4
Other Operating Income
66,377
47,318
3.5
Foreign Exchange Gain \ Loss (Net)
165,839
135,355
B
Total Operating Income (A+3.3+3.4+3.5)
1,649,954
1,246,029
3.6
Staff Expenses
187,150
145,370
3.7
Other Operating Expenses
309,602
243,430
C
Operating Profit Before provision (B-3.6-3.7)
1,153,202
857,229
3.8
Provision for Possible Losses
181,526
129,719
D
Operating Profit (C-3.8)
971,676
727,510
3.9
Non- Operating Income
7,048
1,426
3.10
Write Back Provision for Possible loss
142,820
66,777
E
Profit from Regular Activities (D+3.9+3.10)
1,121,544
795,713
3.11
Extra-Ordinary Income\ Expenses (net)
-
F
Profit Before Bonus and Taxes (E+3.11)
1,121,544
795,713
3.12
Provision for Staff Bonus
101,958
72,338
3.13
Provision for Tax
321,169
221,977
G
Net Profit/Loss (F-3.12-3.13)
698,417
501,398
4
Ratios
4.1
Capital Fund to RWA
11.50%
12.17%
4.2
Non Perforiming Loan (NPL) to Total Loan
1.12%
2.37%
4.3
Total Loan Loss Provision to Total NPL
173.61%
114.39%
uring both these periods (before and after the Nepali management) spanning over two decades, NIBL has been providing quality service to its customers and sound return to its stakeholders. "With sustainable growth every year, we have been living up to our mission statement providing innovative products and services through a blend of new technology," says Jyoti P. Pandey General Manager of the Bank. Analysis of the financial highlights over last seven years shows that the deposits have gone up notably. This continuous rise in deposits every year shows growing customer loyalty towards the bank. Likewise, net wroth along with loans and advances have also increased considerably. If the bank is to continue its current growth rate, it is likely to be the largest profit making bank in private sector bank next year.
Niraj Shrestha, General Manager of the Bank, explains, “The unique products and services that we offer to our clients have provided them with the much needed long-term capital to support their business growth, whilst also allowing flexibility to manage their day-to-day cash with opportunity to minimize idle cash and interest cost. The scope and range of our SME products are varied and our customers can choose the financing option best fit for their respective businesses.”