We should have finalized the merger by now, but we are still working on that.

Commerz and Trust Bank Nepal Limited is grabbing headlines for all the good reasons over the recent months. There was a very good response to the bank’s IPO earlier this year. Its ongoing home and auto loan schemes have also drawn a huge number of individual customers to this bank teeming with corporate clients. Of late, the market is also rife with speculations about some big banks trying to seek a merger with Commerz and Trust. ShareSansar.com approached Mr. Anal Raj Bhattarai, Chief Executive Officer of the bank, so that you get to know more about the strategies and plans of this emerging bank.

An excerpt:

There was an overwhelming response to the IPO you floated. How do you plan to live up to that expectation?

There were a few factors that led to a huge response to our IPO. One of them was the fact that any commercial bank was issuing its IPO for the first time after almost a hiatus of five years.  It was much awaited thing. People were eager to buy the shares of commercial bank at face value, and our IPO provided a good opportunity to them.

Janata and Civil banks floated their IPO just before ours. That had created an investment sense in the market, and it supplemented us. But, most importantly, the investors were aware of the fact that we are cost-effective and efficient. We are very conservative in terms of the operational cost.  We have the least number of branches among all the commercial banks in the country. We have only 15 branches.  And, as of today, our deposit and credit mobilization is very impressive. We have mobilized Rs 11.5 billion in deposit and Rs 10.5 billion in credit. So, if you look at ‘per branch utilization of deposit and credit’ then you realize that we are the best in terms of assets and liabilities mobilization. Our efficiency makes us one of the most sought after commercial banks.

Now we are devising similar efficient strategies to ensure that our shareholders not just get better returns but also sustained returns. At this point, I will want to assure the shareholders that they will get a very good return by next year. I don’t want to specify the dividend in percentage as it will be unfair to impact the share price (of the commercial bank group).

How are the customers responding to your tempting home and auto loan schemes?

Recently the central bank has issued a directive that requires a commercial bank to provision 60 percent as corporate deposit and at least 40 percent to individuals. Our initial plan was to develop Commerz and Trust as a class banking which caters to corporate and high value net worth client.   We are able to cater vast number of corporate clients. They are satisfied with our service.

Now that we have to maintain 40 percent deposit of individual clients, my strategy is to attract them to our bank by offering appropriate rate of Interest. Nowadays clients are extremely sensitive to interest rate. And ongoing festive season is the right time to attract them to diversify portfolio. Our strategy has shown positive development, and we have an overwhelming response from the customers. We already had a big portfolio of satisfied corporate clients, now we also have a huge number of individual clients who will remain loyal to us. That’s what I wanted!

Has it anything to with surplus liquidity in the banking system?

Though there is no denying that there is surplus liquidity in the system, it does not necessarily mean that all the BFIs have surplus liquidity. Some of them are also facing liquidity crunch. The attractive loans I am offering has nothing to do with the liquidity in the market in that these schemes are basically aimed at luring individual clients.

Anyway, are you concerned about the surplus liquidity in the system?

As a member of banker fraternity, I am worried. We need to maintain 20 percent of our asset in liquid form. That asset gives less than 1 percent return— it is basically a dead asset. And we have to depend on the remaining 80 percent remaining portfolio to earn margin. Given the situation, I may not be able to pass benefit to customers even if I want to do so.

As a citizen of Nepal, I am even more worried. Surplus liquidity will lead to two things: reduce the interest rate on deposit and increase inflation. Inflation will go up because the people won’t get adequate return on deposits as return on deposit is going down, forcing them to invest it on unproductive areas or to spend more.

Moreover, remittance has become the mainstay of Nepal’s economy. Now that the US dollar has surged against the local currency, the people in the bottom of pyramid have benefited the most. To some extend devaluation of domestic currency has also contributed toward liquidity surplus. If you look at the utilization of remittance money we can say it is another factor for inflation. Where does this money go? To the market, for consumption.

In your opinion, how should we tackle this situation?

I think the authorities such as the Ministry of Finance and the Nepal Rastra Bank, the central bank, should think about creating a benchmark return on Treasure bills. And, if it is possible, they should also give return on the cash reserve ratio (CRR).

The central bank has issued four reverse repos over the past one month in a bid to mop up surplus liquidity in the system. But it is auctioned at around 0.5 percent interest, which again is negligible. I do wonder why this is happening.

Commercial banks like yours are getting attracted to the share market of late. Is it only because you don’t have enough investment opportunities, or it is more of a choice than compulsion?

It is more of a choice as we want to diversify our portfolio. We have a very good exposure to the share market, though we are choosy and we cherry pick only extremely good assets. We, as the corporate citizen, have the responsibility to go to the capital market to boost it up. The share market is already 20 years old and it is still trading at around 500 marks. It should have crossed 1500 marks. If the corporate clients enter the market, they don’t resort to quick entry and exit.

And my interest is not to sell, and my interest is not to control. My interest is to diversify my portfolio.  Corporate clients won’t follow the crowd in the stock market. They act differently. That will stabilize and enhance the stock index.

There are several restrictions on us. As a commercial bank, we are not allowed to hold shares of other commercial banks. But in many countries this is possible. But in Nepal cross holding is prohibited for commercial banks. We may explore an idea to allow Commercial Banks to diversify the portfolio without giving voting power on such stock for trading purpose only.  

What do you think should the concerned authorities do to promote the stock market?

The regulatory authorities such as the Ministry of Finance, the central bank, the SEBON (the Securities Board of Nepal), Nepal Stock Exchange should develop a consortium to lift up the stock market. None of these authorities should act unilaterally to promote the market. It has to be a consortium effort, which should also include the general public and the corporate sector. The corporate sector as well as the individual investors should be encouraged to invest in the stock market.

When I was doing my chartered accountancy in India more than 20 years back, I used to actively participate in the stock exchange. The Indian authorities would give tax rebate if you invested in the stock market. It was aimed at promoting the stock market. Here in Nepal, if you invest in insurance scheme, you get tax rebate. Why can’t they provide such facility for those who invest in the stock market? If we take such steps then the stock market can reach 1500 mark. But what is happening in Nepal! If the index reaches 1000 points, it is termed as a place for gambling. If it is gambling here then what would you call the stock markets of India and the United States. The Indian stock market crosses 22,000 and even 24,000 points. What do you call that? A crime? A loot? What we need to understand is that it is market, which has an in-built check and balance mechanism to regulates itself to a large extent. If the stock index reaches 1,500 or even 2,000 points, it does not mean that the price of each share has surged accordingly. Those whose price earning (PE) ratio is high will stand to profit while the price of shares of those, whose PE ratio is low, will automatically decrease. The market will correct itself. Hence, we need to boost the market.  

Are the current monetary as well as fiscal and commercial policies favorable for the banking sector?

The monetary policy has tried to introduce a few new things, though the central bank is yet to issue a few circulars to clarify certain things. What we have been observing here in Nepal is that we somewhat lack consistency and clarity in our policies. We are not very clear as to where we are heading — at least for another five years. Since I started this bank in 2007, I have seen four or five finance ministers. And with each government change, the new government introduces policy change in line with their ideologies and vision. How could the monetary or the fiscal or the commercial policies be consistent? On top of that, we have a tendency to control the private sector more than regulating it. And at the same time, we seek growth. It is not possible to control the businesses and at the same time seek growth. What the government needs to do is to regulate and facilitate the private sector if it wants to stimulate economic growth.

Commerz and Trust Bank posted a huge profit in the last fiscal year—an astounding profit growth of 286.01 %.  What led to this impressive growth?

Chiefly there are two things which led to this growth. One of things, as I mentioned before, is that we are very conservative on spending, and the second thing is a very good quality of assets due to the high level of service we have been providing to our clients. We are confident about even better performance this fiscal year. The way I am planning things, we will be in a much better turnout position by the next nine months. Our profitability will shoot up like anything.

If you look at my strategies, you realize that I don’t want to spread my wings just for the sake of it. I don’t want to grow like an elephant or a dinosaur. I don’t want to be too big to fall. I don’t want to be extinct. I want to grow like a rhinoceros, small but agile and powerful. I was focused from the day one on my niche market i.e. the corporate world. I didn’t need much branding or marketing to target that sector. So, I was able to keep the advertisement cost low.  And, I continue to do so. I also use other cost effective platforms to promote my bank. That’s how Commerz and Trust is being branded. I have also developed a Facebook page as the CEO of my bank to forecast about the movement of Nepalese currency in regards to the greenback. It has helped boost the image of Commerz and Trust. Moreover, we introduce new things in the market. The auto and home loan schemes we have introduced have promoted our bank in a big way. To sum, we don’t believe in massive advertisement to promote the bank. We do small things differently in such a way that people notice us.

What can shareholders expect from your bank from the profit your bank posted in the last fiscal year of 2069/70?

We are yet to decide about the dividend because we are working on possible merger. It’s not that we cannot give some dividend from the base profit we have made in the last fiscal year. But the question here is that should be distribute the dividend this year alone or shall we retain it till the next year to give a much better dividend, considering the merger we are planning. We want to wait this year also because it is not always convenient for the small investors to collect a small amount of dividend. We are working on that, and we will take a decision in the best interest of our shareholders. As I mentioned before, it is not only a question of giving returns to our shareholders, it is about a sustainable return.

Recently, there were rumors in the market regarding the merger of Commerz and Trust with Everest Bank and then with Global IME Bank.  But they were brushed aside as baseless. But now that you have confirmed that you are working for a merger, what are your plans for that?

At this point, I cannot name any bank we are seeking merger with. What I can inform is that we are talking with different banks, and we are making a good progress. Our first AGM had directed us to work on a merger, so we are definitely going for a merger. As for the rumors I cannot stop them.   

For a merger, you have three options. One of the options is to become as big as possible by holding hands of a big bank. This is a fastest way through which you can become one of the top 5 banks in just 5 years, though you may have to sacrifice something in the process. The second option is to merge with the same type of bank(s), and then lead the merged bank and reach the top five position in 5 to 10 years. The third option is that you retain your bank and acquire smaller banks. This way you will reach the top five position in 15 to 20 years.

My intention is to choose the first option, the short-cut way to the top. So, I am working with some good big banks. If somebody wants to lift me on their shoulders so I can reach a higher position, why should I shy away?

When we talk about our merger, you need to understand that it is the big banks that are urging us for the merger, more than we approaching them. Why they seek us? For the synergy effect. We have a very good corporate portfolio. We have a very low number of branches—only 14, but a very high utilization of the branches in terms of credit and deposit. The number of staff is very less—only 200, and very very less at the top level. Our investment total fixed asset is below Rs 14 crore.  My Core capital is free. The bank, which wants to merge with us, will not have to share asset burden, will face hardly any problematic loan, and have a very good quality of risk asset.  So, many banks are constantly approaching us for a merger.

Are they Nabil, Everest…?

I can’t name them now.

Are you close to a deal?

We are working on it.  We should have finalized it by now, but we are still working on that.

Didn’t you also explore the possibility of forging a joint venture with a foreign bank?

Yes, we did talk to a few Indian banks. But it is not easy to bring a joint venture looking at the prevailing situation in Nepal. The foreign banks are in a wait and watch mood. For the dust to settle, we have to wait at least for another four months. Should we wait for that long? It depends on how the merger deal works out with domestic banks. The probability of a merger is very high. But you never know.

Anyway, sooner or later the banks have to merge. We cannot have 31 commercial banks in a small economy like ours of US $ 18 billion.  And, the central bank may not persuade the banks for the merger, the market force itself will compel them for merger. NRB has never told me to go for a merger, but I am seeking it. This shows that the market has itself gone on a correction mode.

Any last word for your clients and the audience of ShareSansar.com?

I would like to wish happy Dashain and Tihar to everyone, including our shareholders, depositors and borrowers. Let this festive season bring peace and prosperity to everyone in our country and across the globe.