Interviewee: Ganesh Raj Pokharel, CEO of Citizens Bank International
Interviewer: Aakriti Thakali and Sandeep Rana from Sharesansar
- Executive MBA degree in Finance from Kathmandu University
- MBA (Marketing) and
- BL (Banking) degrees from Tribhuvan University.
- 27 years of working experience (Management Expert for 14 years and 13 years as a banker).
- One of the founders and the Chief Executive Officer of Citizens Bank International Ltd.
The problem of liquidity shortage has been the talk of the town for so long now that even small retail businesses are starting to feel uncomfortable. How the problem arose has been discussed many times, but why do you think it hasn't been solved yet?
The problem of liquidity shortage won't be there as long as there is a balance between the source of fund (deposits) and the use of fund (loans and advances). However, if the loans grow by more than the deposits, then it is obvious to run into a shortage. But maintaining a balance is easier said than done while running a business. Everyone is in it for business and that creates competition. So, the first reason might be bankers' priority on fast growth.
The second reason can be the fact that we are entering a new era. The infrastructures are increasing and so are the industries. In a period like these people need money/loan to expand, grow and earn. So it is not just banks pushing, but the market is demanding it. However, the problem arose when demand surpassed the supply of loanable funds in the market. Looking at that, NRB did open way for foreign funds and few banks brought in some amount too but it came short to quench the market's thirst for liquidity. So, to completely solve this shortage a lot of things are necessary beginning from people's trust to simplicity in bureaucracy and so on.
What alternatives do you think can bank adopt from their side to ease the liquidity tension?
The first of many is an emphasis on the productive sector. NRB has stated various guidelines regarding that and has also given definite percentages to be invested in these sectors. As long as we stay within the lines stated by NRB and then take an extra mile to capture the real essence of economic growth by prioritizing productive sectors that will generate income and discourage imports, we can attain sustainable growth.
The central bank, with a primary focus on the protection of the public's money, has been building tall walls for BFIs. In the context of the recent change in spread rate calculation method, what are your views? Do you think NRB will take back the circular?
This issue affects the entire industry and therefore rather than as an individual CEO we want to address it as a group. We have discussed the topic in Nepal Bankers' Association (NBA) and the list of demands with suggestions have been submitted to NRB. The discussions have been going on and hopefully, they will be addressed.
If we look at our bank individually, our spread rate prior to this circular was 3.15% and even after the change in the method, it stands at 4.23% while the upper-limit stands at 4.4%. However, many larger banks have been impacted by this change and therefore we have submitted a joint request.
Prior to the airing of Monetary Policy this year a lot of stage was given to Big Mergers and consolidation. Although nothing of the sort happened, do you think forced consolidation is justified?
The concept of Big Merger has come from the same agency that distributed the license in the first place. As we can see, the number of development banks and finance companies has significantly dropped and still is declining. However, what number of BFIs is ideal for an economy is a topic for very in-depth analysis.
The investors have put in their money with huge hope and as a CEO I'm an employee of this organization. So I think it is not my place to say what should be or shouldn't be. The agenda of M&A belongs to the shareholders, who in turn are represented by their Board of Directors and Annual General Meeting. Having said that, if you ask me I think it's equally important to look at the topography of our country when analyzing the ideal number of BFIS. Many examples are given citing India, Bangladesh and Pakistan saying that they have one branch per 10 lakh or more people, so why in a population of just 3 crore we need these many BFIs?
Despite the fact that our population is just 3 crore, we need to see how scattered we are. Following the goal of NRB many banks have established branches in many rural areas and still there are places that haven't been brought on the financial inclusion net yet. So, as long as the banking access is below 100%, the banks should be focused more on expanding financial access and then only we will be able to add on to the goal of "Sammridha Nepal, Sukhi Nepali". In the days to come, when market gets saturated the BFIs will consolidate themselves and I think merger done by choice has better survival chances than forced merger.
Banks have established many branches in remote locations under the Financial Inclusion Policy. How are these branches performing? Are they financially viable?
Almost all of the branches established under the federal structure to reach all local levels are in loss right now and I think it's true for other banks too. We have our branch in Sarkegad, Namkha in Humla, Dhakari, Accham that has no loan so far but the bright side is that at least we have been able to teach banking to people there. This fulfils our shared value that we share with this nation and that is also equally important as profit.
Yes, each branch is a profit center for us but sometimes we need to look at the bigger picture. If we look at the consolidated statement of all banks, they are doing well and therefore we don't need to immediately expect loans to be disbursed from rural branches. Even having deposits is a great sign , as these deposits can be used for lending from other branches and we can begin from there, create inspiration and establish banking habits gradually.
Recently, renowned politicians and business personnel have been complaining that banks are earning too much and maybe this pressure had prompted NRB to make changes in spread rate. Are banks really earning too much?
I don't think so. We earned Rs 1.49 arba, which seems like a huge amount but we also need to look at the capital. Today, all commercial banks' paid-up capital is above Rs 8 arba, ours is Rs 8.37 arba and from that profit we are able to give return of 15% only. If the large businesses houses had the same disclosure as banks, I think their rate of return is way higher than that of banks. Even if you take loan today, you won't be able to get it at rates below 13 to 14 percent and therefore I think 15% is not that high return. Even upto 20% it is reasonable due to inflation and other factors in the market.
BFIs are highly transparent and all information is easily available and that is why a lot of analysis are done. If same level of transparency in mandated from all other sectors, then we can see the full picture.
Citizens Bank International
Along with 5 other commercial banks, Citizens bank had also submitted the application for broker's license to NEPSE but suddenly the process has been halted. What do you think the final decision will be? If the final decision comes against providing license, then what are the losses you'll need to face?
In the previous NBA meeting we discussed this issue too and came to the conclusion that providing brokers' license to banks will do more good than harm. The capital market of Nepal needs geographic diversification so that more people can participate and increase the market turnover. Given that banks have the largest network of branches, giving us broker license will aid in achieving that goal. We have forwarded our suggestions to the concerned authorities and will be hearing back soon.
Even when new banks were being licensed, many criticisms came but as we see today all of the old as well as new banks are profitable, Government is earning huge sum of tax revenue, thousands of people are getting employment opportunities and investors are also getting fair return. So, this will also widen the market scope and won't be undermining the existing brokers. The only thing we need to keep an eye on is Governance and devise mechanisms to avoid and detect any malpractice that may occur.
What is the key differentiating feature of CZBIL that sets it apart from the rest of the banks?
I think our key differentiating feature is our human resource as it has been free from the ABC virus. The ABC virus stands for A: "Aafno manchhe" B: "Bhansun" and C:"Chakari and chaplusi". If there is a problem in the HR of any organization, it starts from the recruitment and selection. So, if we keep the recruitment and selecting process clean by getting rid of ABC virus, the rest can be built up on that.
Likewise, our Board also shares the same philosophy. They encourage us to aim or sustainable growth rather than just high profit for now. We were in Humla before Rastra Bank had instructed to open branches in local level, we had introduced products like "fast track loan" and "one zone, one product" before NRB directed to focus on agricultural and deprived sector. So our specialty is our focus on sustainability and clean organization.
One of the most innovative product you've introduced was the "Fast Track Loan". How is its performance so far? Has it resulted in higher NPL?
We introduced "Fast Track Loan" with prime target on agricultural sector and it's doing well. So far we have disbursed around Rs 2 arba under it in areas such as Surkhet, Bardiya, Bhojpur, Dunai – Dolpa, Simikot – Humla and so on. Under this initiative, we took land without road access as collateral, which was later on enforced by Nepal Rastra Bank (NRB) by asking the banks to lend certain percentage of credit in agricultural sector.
The collection on these loans are also good because these people are highly conscious about paying their dues in time. Any delay would harm their social status and their credit worthiness in the days to come. The loans are small, so the administrative costs are higher compared to others and some accounts face some delays but in overall the performance is good.
The Monetary Policy has stated that banks need to issues debentures worth 25% of their core capital? Do you have any plans to issue debentures in near future?
Yes, absolutely. We are planning to bring debentures worth Rs 2.5 arba soon.
How has your professional growth been at CZBIL given that you've been here since the very beginning? It has been 4 months since you took the chair, would you say that having an extensive prior experience here has helped you get to the point sooner?
It has helped a lot. My employee Id number is #1 and I have been here since the very beginning when it was proposed as International Chartered Bank. In was in education field prior to that and therefore my banking experience is as long as my time here at Citizens Bank. I feel like my colleagues love and appreciate me and therefore I'm engulfed by work almost all the time and it feels like home. This is my first bank and will be my last as I don't plan on working at any other bank after my tenure is completed here. So as long as I'm here I will dedicate my heart and soul to motivate my fellow employees to create a model organization when I leave.
Where do you see CZBIL at the completion of your first tenure as CEO?
My vision is clear. I want to provide above market average return and I want to prove to my seniors and shareholders that they have handed-over the bank to a competent person. If the Board, shareholders, employees and customers are happy I will think my goal here is fulfilled. I want to establish Citizens’ image as a bank that is very conscious about corporate governance and is clean from all fronts. Companies live forever and my job here is to add few more bricks so that the foundation becomes stronger to resist any shocks that may befall.
What is your message to fresh graduates who are entering the market now?
The financial sector of Nepal is very lucrative and has a lots of opportunities and scope. I personally trust them very much and therefore I use bottom up approach. I have a philosophy of "Inside System, Outside Image" from day one. What I want to say to the youngsters is that organizations have a goal or a mission and the individuals have their own goals and missions. So, you need to find the point where these goals coincide and create a mutually benefitting system.
The founders establish an organization to fulfil a dream, but why would one go to work there to fulfil someone else's dream? So, you provide your service/performance to your organization and the organization in turn helps you in fulfilling your needs. This connection is required. You, as an employee, need to give your 100% and the organization also needs to value your contribution through proper performance appraisal system. If that is absent then we have seen Janakpur Cigarette Factory and many more public sector undertakings.
Therefore, there is huge scope for youngsters in Nepali Financial Market and if we can establish an organization that assures fair selection and recruitment then it will be even better.