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Tuesday, May 28, 2019

‘Standard Chartered will be aggressive in pricing, product launch’

Standard Chartered Bank Nepal has the reputation of sitting atop a huge chunk of funds and lending very little to avoid defaults on loan repayments. This practice of keeping surplus funds idle has helped the bank earn the moniker of a conservative lender. All this is going to change under the leadership of Anirvan Ghosh Dastidar, who joined the bank as its CEO four months ago. The bank offered a sneak peek into changes that are about to take place by raising savings deposit rate to as high as six per cent and fixed deposit rates to as high as 9.25 per cent. “The message is very simple,” an outspoken Dastidar told Rupak D Sharma of The Himalayan Times in an interview. “We are going to aggressively grow our balance sheet.” Excerpts from the interview:

Anirvan Ghosh Dastidar

Standard Chartered Bank Nepal has started offering up to six per cent interest on savings deposit and up to 9.25 per cent interest on fixed deposit. Deposit rates have never gone up to those levels at StanChart. Is the bank facing liquidity problem?

We have raised the deposit rates because we want to grow our balance sheet. Standard Chartered has always been flush with capital but its asset growth has been nominal and it has absolutely no non-performing loans. Now we want to grow. That’s the message we want to give. We didn’t raise deposit rates because we are facing liquidity problem. We simply want to grow our balance sheet on both sides. This is prudent asset-liability management for the long term. So our message is very simple: We are going to aggressively grow our balance sheet.

Nepalis used to know Standard Chartered as a very conservative lender. All that is going to change very soon with introduction of some aggressive strategies, is it?

All I want to say is that we want to grow our balance sheet. We are one of the largest companies in Nepal in terms of market capitalisation and we want to remain big. If that means aggressively growing balance sheet and competitive pricing, then that’s our plan.

Can we expect changes in other operations of the bank as well?

Soon, you will see a very different Standard Chartered in terms of ease of operation. The feedback we’ve got so far is that we’re difficult to bank with. That is going to change. So, we will be aggressive in the market in terms of pricing; and we will even be aggressive with our products as well. What we want to do is position ourselves for the future of Nepal. So, we will be part of digital disruption and digital evolution in Nepal and we intend to work with young Nepalis and start-ups as well.

The bank has expressed desire to change at a time when the banking sector is struggling to extend credit to borrowers due to shortage of funds that could be disbursed as loans. Nepal is facing shortage of loanable funds for the third consecutive year. How are you seeing this development?

This is a cyclical problem. Once the government starts spending, banks will once again be flush with cash. Despite this, year-on-year credit disbursement to the private sector has risen by over 20 per cent in first nine months of this fiscal. Yes, there are some banks that are facing liquidity problem, but central bank has offered refinancing facility to them. However, Standard Chartered has managed its position well and is not facing liquidity problem. So, it is all about asset-liability management. But, yes, there are problems and we are holding discussions with the regulator on interest and base rate management.

How are the discussions with the regulator moving ahead?

I can’t provide you all the details, as they are confidential. Nepal’s banking sector regulator is well-meaning that listens and wants to help and is keen on holding dialogues with bankers to resolve problems. Having worked in many countries, I can say Nepal’s banking sector has been regulated very well. We are currently holding discussions to find out a long-term solution to problems facing banking sector. And discussions are going on very well.

Many were expecting the recurrent problem of loanable fund shortage to end after the regulator directed commercial banks to raise the paid-up capital from Rs 2 billion to Rs 8 billion. Many had also assumed recapitalisation would provide some scale to banks, thereby exerting downward pressure on interest rates. But nothing has changed. Why?

Banks are only allowed to lend a certain portion of capital. What also makes a difference is size and tenure of loans. So, a highly capitalised bank may not be able to grow its balance sheet. Also, pricing is the outcome of inflation, supply and demand. I believe as interest rate management solutions evolve, interest rates will naturally fall into place.

Is the problem related to greed as well? Banks often say their return on equity has fallen since fresh capital was injected as per regulator’s instruction. So, they are more inclined on profit maximisation. Yes, RoE today is lower than five years ago. But in the last five years inflation has also moderated from double digits to less than five per cent. Bankers don’t take this into account. Isn’t this a bit odd?

I can’t comment on what others say. All I can say is that returns in Nepal are still very attractive. Based on my discussions with regulators on interest rate management, I think interest rates will fall into their place. Nepal is having well meaning discussion on liquidity, base rate and net interest margin. I am very optimistic that things will change.

The central bank and the Ministry of Finance have said this problem cannot be fully resolved unless banks get funds from abroad. This is because money going out of the economy has surpassed money coming into the economy largely because of soaring imports. But so far only one bank has been able to borrow from foreign institution. How do you see this problem?

Standard Chartered is an international bank and one of its responsibilities is to provide solutions to local banks. We are coming up with structures that will allow domestic banks to borrow internationally through instruments like bonds. We are working on that. What kind of instruments are you talking about?

I can’t share that information, as it is confidential. All I can say is that those structures may be guaranteed by some multilateral agencies.

The only international agency that is providing credit to Nepali banks is the International Finance Corporation. Is the instrument you are referring to similar to what the IFC has introduced?

Not necessarily. There are many structures that allow banks to raise funds abroad. But going forward, Nepal needs to deepen its capital markets. Once Nepal has a well-functioning capital market, it will open up avenues to create a lot of funds.

How can capital market grow when interest rates are so high? The bonds floated by the government to the public are usually undersubscribed because the returns are similar to deposit rates. How can Nepal deepen its capital market against this backdrop?

Yes, this is a problem. And it can’t be solved overnight. There are so many moving parts in Nepal’s banking sector like in a jigsaw puzzle. But I think the government intends to create a well-functioning capital market because the budget has talked about getting a sovereign credit rating.

The finance minister recently told THT that he has also sought Standard Chartered Bank’s support in getting a credit rating. Is there any update on this front?

I cannot comment on Nepal’s request, as it is confidential. But credit rating could be a game changer for Nepal as it is the report card of the country’s economy. The timing to get the rating is also good as there is a stable government in Nepal. And credit rating will also help banks to raise funds from abroad.

But some experts are worried that Nepal will get a poor credit score. What is your take on this?

I doubt it, because Nepal today is in a sweet spot. Nepal has finally attained political stability, there is no power outage, new airports are being built, big investments are coming from China in railway and hydropower sectors, consumption as percentage of GDP is one of the highest in South Asia and above everything else, the median age in the country is 24, which is its greatest asset. Also, GDP is growing at six per cent per year and eight per cent is achievable. These factors will also be taken into consideration when a country is rated. So, we are extremely positive about Nepal and it will take off. So, this is the right time to invest in Nepal.

Lastly, are you working on any new strategies, which you have not mentioned, to run the bank?

I don’t have new strategies. I will build on whatever has been achieved so far. We now want to be the bank for young Nepalis. Of course, we cannot be a bank with hundreds of branches all over the country. Currently, we are present in six or seven cities and we may open a few more branches in the next one or two years. But we will spend money in digital space.

The post ‘Standard Chartered will be aggressive in pricing, product launch’ appeared first on The Himalayan Times.

from Business – The Himalayan Times http://bit.ly/2Xagyb1

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