Negative net worth has led to loss of many business opportunities

KATHMANDU, JAN 12 -

Krishna Prasad Sharma is the new chief executive officer of Rastriya Banijya Bank (RBB). Sharma is the first CEO to be appointed through free competition. He was earlier engaged as the deputy general manager at RBB and has over 24 years of experience in the banking sector. Mukul Humagain and Prithvi Man Shrestha caught up with Sharma to talk about his immediate plans, RBB’s future and the overall banking sector. Excerpts:

What are your plans for RBB?

When calling for applications for the job of CEO, we were asked to submit an action plan for the bank for the next four years. I was appointed CEO on the basis of my plan. That’s why I will implement my action plan in the bank. I have segmented my priorities into three parts. First, I will adopt a strategy to provide swift service to our customers. They have complaints about delays in service delivery, and I want to address them first.

Second, I will focus on business expansion of the bank. As the cost of operation is increasing particularly due to payment of higher interest rates for receiving institutional fixed deposits, it is necessary to expand our business to cover the increased cost. As there are limited opportunities for investment, I am trying to set the priorities to expand investment. We will expand investment in areas such as agriculture and small and medium enterprises.

Third, I will concentrate on solving problems within the bank. One of them is non-performing loan (NPL) recovery. We will work on a war footing to recover NPLs. Likewise, I will concentrate on turning the current negative net worth to positive and to a level that gives it recognition of a healthy bank.

Similarly, human resource development will also be my priority. I am not going to increase the number of staff but replace older staff with younger ones through measures such as voluntary retirement scheme. Also, I will concentrate on increasing the efficiency of our existing staff so that the per employee business of our bank goes up.

You talked about giving priority to recovering NPLs. Are big defaulters in communication with RBB?

Most of our clients who have defaulted are in regular communication with us. We are listening to the problems of industrialist who could not pay due to partial operation of their factories. If there is a possibility of reviving those businesses, then we will help in possible ways to convert them to good loans, i.e., injecting additional funds or restructuring loans. However, we will take stringent action like auctioning the collateral and confiscating the passports of those who are not willing to remain in contact with us. 

It has been a decade since financial sector reform was implemented in RBB. But its capital is still negative and the privatization process is nowhere to be seen. How and when will RBB return to being a healthy bank?

The RBB management’s efforts will not be adequate to make its net worth positive. Internally, we can make efforts to increase the income and decrease the cost in order to make our net worth positive. But Nepal Rastra Bank and the government should also support us. Internally, we will recover NPLs, sell our non-banking assets, revalue some of the assets at new market prices and divest our stake in Nepal Investment Bank.

By performing the aforementioned tasks, we can generate Rs 3 to Rs 4 billion within a year. We have requested the government to invest Rs 10 billion, recapitalize the bank and turn it into a healthy bank. Similarly, we are also positive about merging with NIDC Development Bank which will help to some extent in recapitalizing RBB. Another option can be issuing convertible debentures and generating supplementary capital which can later be converted to ordinary shares. But banks having a negative net worth are not allowed to issue such debentures. So if NRB makes it a discretionary provision for us to issue debentures, we can go for that option too.

If the government refuses to inject capital, how long will it take to convert your net worth to positive?

In case we have to make our net worth positive on our own, it will take at least five to six years. Within four years, we can make our net worth positive; but to increase the capital adequacy ratio to 10 percent, it will take two more years. But we have lost many business opportunities due to our negative net worth. If the

government cannot put in money as requested by us, we hope it will continue to support us to revive the largest government-owned bank.

What’s your assessment of the outcome of financial sector reform implemented in your bank?

Although the target of financial sector reform was to increase the capital adequacy ratio, the money received for the programme was not for injecting into the bank’s capital. The programme was successful in other ways like minimizing the negative net worth, recovering NPLs, computerizing the bank, downsizing the staff to 2,600 from 5,600 and introducing tech savvy products like cards. However, the ultimate goal of turning the bank into a healthy situation could not be realized.

Most bank CEOs are not expecting good results in the coming quarter, mainly due to disappointing recovery from the realty sector. What is your outlook for the coming days?

Most of the current problems revolve around real estate lending. Since we have very low exposure to that sector, our bank’s revenue generation will not be hit. Most of our lending after 2002 is good loans and only about 1.5 percent of the loans provided after 2002 have been non-performing loans. Our only concern is the high cost of funds compared to the past. It is because we focused on fixed deposits late that they decreased to Rs 2 billion.

Also, our employee cost increased as we had to revise the perks and benefits in line with the government’s decision to increase the salary. But our profit will not decrease significantly. Regarding other banks, I think the problem will be solved soon as all the stakeholders are sincerely trying to solve it. A big part of the problem was due to high exposure to the realty sector due to greed, but bankers have now learnt their lesson. So in the coming days, they will act more sensibly.

Liquidity has increased, but credit demand has been sluggish. How are things at RBB?

Yes, it is true that liquidity has increased in the system. Unlike other banks, we have not stopped lending; and we plan to increase lending in the future too. Other banks might have stopped lending in order to maintain the credit-to-deposit ratio at the prescribed level. Likewise, a majority of banks were in a painful situation in the past due to an acute liquidity shortage, and they might have become extra cautious in making investments these days. But as they earn profits, they will definitely increase lending.

Source: Kantipur