Kist goes commercial
There is probably no commercial bank in Nepal that started out with the paid up capital of Rs. 20 billion, 60,000 plus customers, 20 branches and an employee base of 250. It was in the plan of the board of directors of Kist Merchant Banking & Finance Ltd. (KMBF) to upgrade it into a development bank five years after its operation and into a commercial bank after the next five years. But considering the unpredictable policies of the Nepal Rastra Bank, the directors sat down to revisit the plans and, well within six years of its founding, the ‘C’ Class financial institution has leapfrogged into the ‘A’ Class commercial bank, now to be called Kist Bank Ltd. “Not a single promoter or a shareholder has come to express his doubt regarding our competence to make it through. We take pride in their unconditional faith on us,” explains Kamal Prasad Gnawali, Managing Director, Kist Bank Ltd.
KMBF had started with a paid-up capital of Rs. 300 million with 16 promoters in its board on Falgun 9, 2059 BS. It went public the following year and the capital was increased to Rs. 500 million. Once on the roll, there was no looking back – the capital further rose to Rs. 100 million next year and to Rs. 200 million the year after. Their paid-up capital stands at Rs. 200 billion now and deposit at Rs. 50 billion while lending is Rs. 55 billion out of which 35-40 percent is in the real estate sector as Gnawali informs. “We have been giving 10 percent dividend to our shareholders annually right from the start,” he adds. “I believe no other financial institution here has managed to do that.”
Though Kist has introduced nothing sort of extraordinary products or services in the market, it’s the feeling of difference attached to their each portfolio, the sense of uniqueness, which has earned them quite a different referral in the market. One such scheme was ‘Kist Khutruke’. While other financial institutions would feature piggybanks in their promotional brochures and ads, Kist handed out the real ones to their customers. “It could have sounded like a marketing gimmick for some but that small detail made all the difference to us,” Gnawali reflects. Then they began issuing loans keeping academic certificates as collateral, which again was a new idea, which sold well. The next was ‘Bonus Saving’ in which any client could open an account for one rupee and would receive hundred rupee bonus, which meant the total deposit would be one hundred and one rupee. This product again was new and unusual. “We had targeted 10 thousand customers for this scheme but 12 thousand came to queue up. Now we have more than 500 million deposit under this scheme and other banks too have started similar scheme, making us believe that we were right all along the way,” Gnawali adds.
Kist has similar products now even after becoming a commercial bank. As Gnawali informs, they look forward to reform SMEs (Small and Medium Enterprises) into Highly Professional Entrepreneurial Organisations (HPEOs). “We don’t want to brand and project them as small organisations as we believe them to be the pillars of the national economy,” he says. E-banking is also on their cards and five more products, which Gnawali doesn’t want to make public now, are also in the pipeline. They are also pushing up the number of their branches; six more branches will soon start operation taking their strength of branches to 26, most of which are located outside Kathmandu. They have 18 ATM counters as for now and 10 more are in the pipeline. Gnawali informs that they plan to add 25 more branches next year. “We plan to reach each and every place where there is need for banking – where there is feasible population density, access to road, electricity and telephone. Even if there won’t be any profit, you will see our footprints at those places,” he explains.
 |
Kamal Prasad Gnawali
Managing Director Kist Bank Ltd |
Saying that increasing the number of branches can’t be cost-effective to any bank, Gnawali however doesn’t agree with the logic that the decade-long insurgency had made it difficult for banks to go to the rural areas. Banks did not go to the rural areas in the past due to the thinner margin there but, the situation has changed now. Market is shrinking for the old banks at urban towns with the entry of newer ones. Now it has become a compulsion for them to go to the villages to survive the competition and to keep their hold on the market,” he says. However, in his view, this branching spree of most of the banks is not the outcome of serious feasibility studies. “The rural villages do need banking services but it does not mean that the services should be provided through branches only. There are alternate models as well which should be explored,” he says. This might be the reason why Kist has proposed to come up with the idea of Haat Banking, which again is an unusual service wherein different banks go to a certain village one day a week with their mobile vans with all their products and services under a tight security net to inform, aware and bring the locals under the mainstream banking mechanism.
It is like mobile banking. The venue changes every other day, and the idea is to revisit a venue once a week to let the villagers fulfil their banking needs. But if a customer needs to withdraw cash or deposit money in between the week, he needs to visit the nearest branch of the respective bank.
Gnawali likes to call Kist Bank Ltd. an easy and transparent institution. “Our business is transparent and our vision may look similar to others. but the expertise that we possess in terms of coining out innovative products and services is what makes all the difference,” he says. “We don’t believe in doing different things but doing things differently, which is our USP.” Gnawali believes that organisations are of three types; first that are known by the name of their promoters (third class); second that are known by the name of their CEOs (second class) and the third that are known by their system and management (first class). “There is no place for a person in a system. And when the system works without intervention, sustainable growth can be achieved. We have been keeping up with this managerial belief in Kist,” he shares.
Human resource management is their top agenda due to which they have a zero employee turnover, except for those who have sought to leave to pursue higher studies, according to Gnawali. Maintaining conducive working environment is their focal point and they find it comfortable to recruit fresh graduates and train them according to their requirement. “I make sure that the right person handles the right post and I don’t make an employee work beyond his regular hours without due compensation even if it’s just about an hour. We conduct monthly trainings for our employees taken by visiting faculties and experts. Moreover, we have been paying them decent salaries,” he elaborates.
Kist’s NPA is 0.35 percent and Gnawali says that means the NPA is actually zero. It is not unusual for the instalment of some hire-purchase loans and term loans to be delayed by a few days or weeks.
To the question regarding exorbitant salaries paid to the CEOs of Nepali banks, which is drawing criticism from all quarters, especially in the aftermath of the global financial crisis, Gnawali snaps, “I don’t think it’s such a debatable issue. Those who are leading their institutions to higher profits should be paid for their efforts while those who are letting their customers, promoters and shareholders down should realise their incompetence and step down. How much could we pay for the person who invented Internet? A CEO is also an inventor for a bank. One good idea can be enough for a bank to earn consistent returns for years.”
On the parting note, he maintains, “Though we started from the bottom, it never occurred to us. We held the spirit of an eagle all along the way. You will see that in a matter of months people will wonder whether Kist was once a finance company.”
Soaring high
At a time when most airline companies are refraining from expanding their businesses or even struggling to sail through the turbulent times, Agni Air Pvt. Ltd. wants to surprise all – it plans to add two more Jetstream-41 aircraft to its fleet of one Jetstream-41 and three Dornier-228. Ganesh Chandra Baniya, CEO of Agni Air, opens up the wonder box with the plain statement: “We want to cover the entire air routes of Nepal.” He is convinced that with good managerial input, innovative marketing strategies and newer routes, Agni Air will have an edge over other domestic airlines. “If we can manage 80 percent seat occupancy, we will keep afloat even when the passengers are only the Nepalis,” he explains. It may be recalled that foreigners are required to pay higher airfare than the locals in the domestic flights.
Agni Air had started its operation in 2006 with a 15-seater Dornier-228 aircraft bought from one of the domestic airline companies. It has now three Dornier aircraft after the company bought two 19-seater Dorniers from a Malaysian company not long ago. These small aircraft are best suited to fly to places like Jomsom, Lukla and Tumlingtar, which the Civil Aviation Authority of Nepal (CAAN) has categorised as Short Take Off and Landing (STOL) routes. Services to these places in Agni Air’s parlance is ‘Remote Sector Operation’, informs Baniya.
With the competition among the carriers in the domestic routes getting intense, Baniya's decision to add two more J-41 aircraft is to ensure high reliability on the company’s flight schedule. “The second J-41 aircraft will land here soon while another one will come by October and with that, we will have the fleet size of six aircraft,” Baniya shares. He considers three Dorniers and three Jetstream aircrafts as ideal for any airline company operating domestic flights in Nepal. “Currently, we are operating four to five daily flights to Biratnagar. Pokhara is attractive from March to May and from September to mid-December when tourist arrival hits its peak."
With a track record of safe aviation services, Agni Air intends to command greater market share by 2010 after the purchase of two new aircraft. “In terms of seat occupancy, we have projected to command around 15 percent market share with annual passenger number of about 1-1.2 million,” Baniya further informs. The airline had catered to 2.5 million passengers, including 1.5 million foreigners, by September last year, which makes Baniya believe that domestic market is in good health. However, their focus will be in increasing the foreign passengers as the yield is higher from them. “Even 80 percent seat occupancy with domestic passengers is a break-even situation. So, we have our fingers crossed in anticipation that tourism will thrive in the coming years in Nepal and we could also take some leverage out of it,” he adds.
To up their foreign passenger number, Agni Air is set to roll out online reservation system and is planning to make significant investment in technology to ensure better service, comfort and uninterrupted flight schedules. The airline wants to transform itself into a more modern, customer-friendly carrier with online flight checking and reservation system. “This is how international airlines operate. This also reduces the commission expenses,” Baniya shares.
Another major focus of Agni Air is to invest in marketing and brand building to face the growing competition in the market and to optimise the use of the expanded fleet size. “We are working on it with plans to establish presence in the media and by providing the corporate clients good discounts. We have already talked to several banks and look forward to build tie-ups with other institutions as well,” Baniya says about his immediate and futuristic promotional plans. For brand building, they have already appointed a brand manager. “You will see our hoarding boards and other forms of advertisements in a short while. We are planning for a long haul,” he adds. Plans are also underway to upgrade their in-flight services. Though the rate is yet to be fixed, they are also planning to offer discounts on tickets to the women, the elderly and to those people who are infected with diseases like HIV/AIDS.
There are 160 plus employees working for Agni Air right now, including pilots and cabin crew. They plan to recruit 40 more people before the new aircraft arrive. Currently, they are also providing trainings to the engineers. Baniya acknowledges that with such high employee number and with the addition of two more aircraft, the operation cost is going to soar high. “But it is worth investing in skilled professionals if you are planning for the long-haul,” he observes.
But the competition among the domestic airlines isn’t always ethical and that’s saddling the growth prospect of the whole sector, Baniya shares. And it mostly happens at STOL routes. “My observation is that there is enough market for all of us but everyone wants a piece of the same pie and what happens is that the same route is sold at three different rates, thus distorting the whole business,” he laments. And it makes him restless that three more airlines companies are about to receive operating license, which he is afraid may contribute not only to enhance the service but also the unethical competition.
“Until and unless the state-owned Nepal Airlines and private operators get into the act together to invest in developing newer routes like Dolpa and other high mountainous locations, the unethical warfare will continue. But when the new routes are developed, it will not only scatter passengers across airlines, but also create new passengers so that every company will have higher business,” he explains.
Baniya thinks that there should be another government authority other than Civil Aviation Authority of Nepal (CAAN), which is a regulatory body, to facilitate private airline operators and to build for them even playing field for healthy and constructive competition. Due to the lack of such state organ, aircraft congestion at Tribhuwan International Airport (TIA) is getting messier and even dangerous, he says. “Private operators like us can help the government to build infrastructural facilities at TIA with technical and financial assistance,” he adds.
Cash flow management is the major bottleneck in the airline business. It’s expensive to keep stock of spare parts in advance but that is a common pressing issue for all the airlines, domestic or international. And that is where management efficiency comes in. “This is an important aspect and we need to be vigilant regarding the health of our aircraft and the required cash flow. If one of our aircraft gets stranded even for a couple of days, its impact on our business is exorbitant. It’s due to this reason that some of the older domestic operators had to bear substantial losses that prompted them to quit their business altogether,” Baniya explains. Apart from its regular business, Baniya says that the company is quite active in social works though they like to keep it low profile. “We were the first airline company to announce Rs. 2,00,000 relief fund to the victims of the Koshi flood and even contributed a certain from every ticket sold. We are planning to sponsor certain things to traffic police and volunteers. We will also contribute in building a park somewhere. And we will keep up with our social obligations,” he concludes.
Playing it Cautious
If someone is obsessed with empirical management system, Standard Chartered Bank
Nepal Ltd. is one good destination to get into the act. A blue chip financial institution with proven track record, it’s currently emphasising on liquidity, capital and portfolio management, as Sujit Mundul, CEO of the bank, informs.
With the global financial maelstrom threatening the Nepali financial market as well, Mundul says his institution is taking cautious steps to weather the challenges that can befall on the local market. “It hasn’t affected us to the extent it has to some Western and Asian markets but the Nepali commodity market has already been hit hard. I think the estimated loss stands at about Rs. 1500 million and it has taken some liquidity out of the market due to the outstanding loans of the commodity market players,” he explains.
Commodity market players in Nepal are mainly the manufacturers who import the commodities as raw material. It’s understandable that these commodity market players or manufactures will take time to generate cash and to repay but the global financial downfall doesn’t seem to rebound anytime soon. It has sent the commodity market falling and Mundul believes that it will take a while for things to stabilise before people begin to sell their goods as usual and earn profits. “This is a time-consuming scenario that won’t be over within a couple of months. I guess it will take more than a year for the dust to settle unless something more catastrophic happens,” he opines.
The areas that Mundul finds difficult for the Nepali economy to assimilate will be in two fronts. First is remittance inflow, which currently accounts for about 20 percent of Nepal’s GDP. As all the Nepalis working abroad are dependent on the economic situation of the respective countries (which too are recessing), decline in remittance in-flow can be expected in the coming fiscal year. If the migrant Nepali workers come back home, the rate of unemployment will further rise in Nepal. Second, the international remittance, which has provided a strong base for liquidity in the international market, will also shrink, thus creating some sort of hardness on the international liquidity market which will affect Nepal in an indirect way.
Nepal ’s major trade is with India which, according to its government estimate, will witness a drop in its annual growth, down to 5.5-6.0 percent from above 7.0 percent last year. But Nepal being the net importer, Mundul thinks the spill over effects won’t be substantial. However, he doesn’t deny that there will be negative effects on employment and business opportunities. Standard Chartered Nepal is working on plans to add more branches and, with them, more ATMs as well. “We are modest about adding our footprints. We are very calculative. We examine whether our branch adds value to the area where it opens. We want to take holistic approach when adding upto our branch numbers,” Mundul informs. He, however, is not in favour of overcrowding of commercial banks in a miniscule economy like Nepal. “By allowing more and more banks into the field, the central bank is not doing any good to the financial system. I don’t think the central bank has that kind of resources to manage so many banks. Examples from other Asian economies don’t support too many banking sector players,” he explains.
Unaudited Financial Results (Quarterly)
As at the end of Second Quarter (13/01/2009) of the Fiscal Year 2065/66 ( FY 2008-2009)
Rs in ‘000
| SN |
Particulars |
This Quarter Ending (Unaudited) |
Previous Quarter (Unaudited) |
Corresponding Previous Year Quarter Ending |
| 1 |
Total Capital and Liabilities |
41,005,602 |
36,276,474 |
30,621,820 |
1.1 |
Paid-up Capital |
931,966 |
620,784 |
620,784 |
1.2 |
Reserves and Surplus |
2,046,073 |
2,120,814 |
1,891,280 |
1.3 |
Debenture and Bond |
- |
- |
- |
1.4 |
Borrowings |
1,810,015 |
925,930 |
- |
1.5 |
Deposits (a+b) |
35,180,188 |
30,963,822 |
27,066,713 |
a |
Domestic Currency |
21,478,175 |
19,915,981 |
18,691,214 |
b |
Foreign Currency |
13,702,014 |
11,047,841 |
8,375,499 |
1.6 |
Income Tax Liability (Net) |
52,769 |
110,328 |
49,580 |
1.7 |
Other Liabilities |
984,591 |
1,534,796 |
993,463 |
2 |
Total assets |
41,005,602 |
36,276,474 |
30,621,820 |
2.1 |
Cash & Bank Balance |
1,805,416 |
1,899,482 |
1,084,897 |
2.2 |
Money at Call and Short Notice |
4,389,723 |
2,286,016 |
2,284,614 |
2.3 |
Investments |
19,328,581 |
15,880,507 |
13,554,284 |
2.4 |
Loans and Advances |
13,752,015 |
15,118,355 |
12,093,864 |
2.5 |
Fixed Assets |
152,236 |
129,831 |
123,227 |
2.6 |
Non Banking Assets |
- |
- |
- |
2.7 |
Other assets |
1,577,632 |
962,283 |
1,480,934 |
3 |
Profit and Loss Account |
Up to This Quarter |
Up to Previous Quarter |
Up to Corresponding Previous Year Quarter |
3.1 |
Interest Income |
910,146 |
461,863 |
768,921 |
3.2 |
Interest Expense |
273,041 |
139,697 |
231,592 |
A |
Net Interest Income |
637,104 |
322,166 |
537,329 |
3.3 |
Fees Commission and Discount |
139,209 |
73,105 |
133,795 |
3.4 |
Other Operating Income |
208,245 |
95,589 |
158,203 |
B |
Total Operating Income |
1,002,036 |
498,946 |
844,621 |
3.6 |
Staff Expense |
122,463 |
54,079 |
98,601 |
3.7 |
Other Operating Expenses |
129,550 |
51,919 |
107,815 |
C |
Operating Profit Before Provision |
750,024 |
392,948 |
638,205 |
3.8 |
Provision for Possible Losses |
26,106 |
10,342 |
11,614 |
D |
Operating Profit |
723,918 |
382,606 |
626,592 |
3.9 |
Non Operating Income / Expense ( Net |
91 |
91 |
- |
3.10 |
Write back of Provision for Possible Losses |
41,859 |
9,025 |
6,407 |
E |
Profit from Regular Activities |
765,867 |
391,722 |
632,998 |
3.11 |
Extraordinary Income/ Expenses ( Net) |
(4,194) |
(358) |
1,004 |
F |
Profit Before Bonus and Taxes |
761,673 |
391,364 |
634,002 |
3.12 |
Provision for Staff Bonus |
69,243 |
35,579 |
57,637 |
3.13 |
Provision for Tax |
207,729 |
106,736 1 |
81,555 |
G |
Net Profit / Loss |
484,701 |
249,049 |
394,810 |
4 |
Ratios |
At the end of the Quarter |
At the end of Previous Quarter |
At the end of Corresponding Quarter |
4.1 |
Capital Fund to RWA |
13.84% |
12.97% |
17.28% |
4.2 |
Non Performing Loan ( NPL) to Total Loan |
0.82% |
0.82% |
1.48% |
| 4.3 |
Total Loan Loss Provision to Total NPL |
198.56% |
199.27% |
157.68% |
Note: Loans and Advances includes Bills Purchased amount. Figures shown in Gross value. Figures have been regrouped wherever necessary.
Capital Fund to RWA is as per Basel II capital adequacy framework. |
The Bank has sold some derivate products (commodity hedging derivates) which, according to Mundul, are doing fine in the market and customers are realising profits even though global derivate markets are fluctuating wildly. “We are contemplating on a few new sets of derivatives and also on some deposit products, like structured call deposits. Some other products have already been launched while others are in the pipeline,” Mundul says. The bank is also looking forward to opening up its SME channel, as its exposure to SMEs stands at a mere Rs. 2.5 million now. “We have done quite a few lendings to the clients in this profile but we intend to offer loans between Rs. 1 million to 20 million,” he adds.
Not joining in the euphoria that some banks have shown with their branching spree, Mundul says it’s better to strengthen the mechanism already in place, like rural banking mechanism, than trying to create something new altogether. “Rural financing should be made compulsory under deprived sector lending through proper nodal agencies. I think all the commercial banks will not feel the pinch that way and will be able to play more comprehensive role in the economy,” he adds. “Ask the commercial banks to recapitalise or put money into microfinance institutions, which could then be treated as deprived sector lending.”
Commenting on the self-employment drive started by the government seeking the role of commercial banks as well, Mundul says, “Similar products have been introduced by some other countries and Standard Chartered has participated in them. It is nothing new to us. We need to see whether it’s deprived sector lending or directed kind of lending. I think if it’s directed lending, all banks will participate and so will Standard Chartered.
