CBFIN has always stood firmly behind every initiative of Nepal Rastra Bank. It is well known that CBFIN has been working closely with the central bank to bring the economy back into rhythm with rapid economic and banking activities by pulling the country out of the vicious cycle of recession, excess and low liquidity crunch in the national economy and to chart the journey towards sustainable, broad and high economic growth. CBFIN is confident that policies of long-term importance have and will play an important role in stabilizing the macroeconomic environment, boosting confidence and maintaining healthy competition in the banking profession.
With inflation under control, foreign exchange reserves are sufficient to sustain more than 16 months of imports of goods and services. However, it is imperative for all of us to seriously contemplate on the issue of lack of employment opportunities to go abroad, lack of proper policy and environment or stability in policies, lack of development and expansion of innovation and self-entrepreneurship, decreasing domestic production, consumption and export and consequently slowing down in economic and banking activities, reducing revenue and ultimately adversely affecting the overall economy. CIFIN is of the clear view that our journey to our well-being and prosperity will be meaningful only through participatory discussions, joint cooperation in the effective implementation of timely policies and policies based on need and relevance.
Current Challenges in the Banking Sector
The banking sector is going through one of the most challenging times in its history. Although the external situation of the economy is satisfactory, the internal economy is weak. Due to the disappointment among the general investors, entrepreneurs÷businessmen, the economic and banking activities have slowed down due to the lack of loan expansion despite the availability of sufficient liquidity at the minimum interest rate. As the profits of banks and financial institutions are falling unexpectedly, the investors of the banking sector are gradually trying to exit in search of safe investment areas. The problem is compounded by the increase in cost expenditure, contraction in profits, increase in non-performing loans, increase in non-banking assets, sluggishness in the sale of non-banking assets, and exodus of skilled manpower. Many banks are now burdened with non-banking assets. There is no proper policy for sale, no environment, no situation to use non-banking assets.
Banks and financial institutions, which are primarily dealing with liquidity, are now going through a very ironic situation where they are more focused on wealth management. With the sensible support of Nepal Rastra Bank, we have faced challenges in the past and now – be it a prolonged internal conflict, earthquake, blockade, Covid, or the recent disruption in global trade chains. Despite frequent policy changes and political instability or changes, the banking sector has been performing comparatively satisfactorily and making itself timely, but in view of the current situation, the banking sector also needs to adopt the path of reform with serious introspection.
There is an urgent need to create an empowered mechanism or a new framework to effectively manage non-bankable assets. Pragmatic and innovative approaches — such as policy adjustments, asset reconstruction models, or the establishment of special purpose agencies — will play a crucial role in revitalizing credit flow and restoring financial stability. CBFIN and the banks and financial institutions (BFIs) are committed to join hands with Nepal Rastra Bank and the Government for the establishment of Asset Management Company (ASM).
In addition, there is a need to review the existing credit loss classification system. Now loans are classified as bad within a year, but in the current business cycle, real borrowers cannot revive their businesses in such a short period of time. We urge the government to reconsider this policy in the context of the practices adopted by friendly India and other international countries. There is a need to take strict action against wilful defaulters, while providing an opportunity to the competent borrowers to recover within a certain time frame.
Similarly, it is imperative to change the policy of not providing tax exemption on losses above 5% for loans and non-bankable assets, as it is clear that banks and financial institutions have to manage loan losses in the current situation, mainly due to macroeconomic conditions. The ever-increasing operating costs of banks can be reduced through advanced digitization, use of fintech, and the use of artificial intelligence. Keeping in mind the rapidly changing business environment due to digitization, there is an urgent need to review the need for physical presence of banks.
Capital Adequacy and Investment Policy
The policy on capital adequacy also needs to evolve with the changing economic realities. Given the current situation where uncertainty over profitability and asset quality is increasing, banks need options for recapitalization. We, therefore, urge policymakers to pave the way for alternative capital instruments, including rights issues and mixed financial instruments. This will help strengthen the capital base of the banking sector. It is necessary to encourage international investors and non-resident Nepalese with a policy that allows them to invest in the equity of Nepal’s banks and financial institutions. This will pave the way for long-term and sustainable investment in the banking sector and will go a long way in attracting foreign investment.
Promotion of service-based fees required
Traditionally, the main source of income for banks has been net interest income. But in today’s changing financial environment, banks need to diversify their revenue models. Income based on service charge should be promoted. According to Cibfin, the new fee policy will help to further refine the service and enhance the quality of the service. Therefore, in order to promote innovation and efficiency, we humbly request the Nepal Rastra Bank to make necessary review of the existing service charge system based on international best practices.
Similarly, there is a need for a review of the directive lending policies. This policy should also be vastly reformed in view of the condition, utility and results achieved so far in the specified sectors. A flexible and risk-adjusted policy will help ensure the sustainability of the banking system while meeting the goals of inclusion. We strongly request the Nepal Rastra Bank to take concrete steps in this regard.
Commitment to Good Governance and Responsible Banking
Nepal’s banks and financial institutions are deeply committed to customer÷customer protection, fair and neutral practices, and prudent banking. At the same time, we are equally committed to high levels of institutional governance, fiscal transparency, and responsive credit flow — all of which are aimed at promoting the real economy.
Our focus has been consistently on financial inclusion. Especially, we are focused on empowering local level micro, small and medium enterprises as job creators and growth drivers. We have been moving ahead with determination in the areas of financial inclusion, development of innovation and self-entrepreneurship, employment creation, productivity enhancement, etc. to empower the micro-enterprises at the local level. We are clear that the focus of our banking business should be on building a real economy. It is imperative for the country to focus heavily on food sovereignty and expand the investment in the banking sector in the development and commercialization of the agriculture sector.
We reaffirm our belief in sustainable banking — a system that creates long-term economic value without compromising on environmental integrity, social equity, good governance, and the ethical values of social welfare.
Our guiding principle is clear: “No negative influence, no negative impression.” ”
Innovation, Fintech, and Preparing for the Future
As the world transitions towards an AI-centric banking era, innovation is the key to competitiveness. Artificial intelligence, data analytics, and fintech solutions are acting as game-changers transforming the banking sector, which requires massive investments in infrastructure and human capital.
In this context, we heartily urge the Nepal Rastra Bank to adopt policy incentives and a framework to create a conducive environment to encourage the banks and financial institutions to invest in such technologies with confidence. This will help keep Nepal’s banking system in international relevance and competitiveness.
Relationship and cooperation between banking and business sector
History shows that the development and expansion of the banking sector is not possible without the development of industry and business, nor is it possible to develop and expand the industry and business without the development of the banking sector. The development and expansion of industry, trade and banking sector are moving in a parallel line. It is clear from this that the relationship between the industrialist-businessman and the bank has been and should remain interdependent, old and strong.
I would like to commend the significant role of the private sector in advancing Nepal’s economy by creating jobs, promoting industries, and encouraging innovation. The financial system has been a major source of entrepreneurship all over the world. No industry, factory, startup or business can flourish without access to finance. Our banks and financial institutions have consistently financed more than 90 percent of the nation’s GDP. This data is unique in itself, showing how deeply the backbone of our economy is connected to the banking system.
However, sometimes the role of banks and financial institutions is overlooked when it comes to the contribution of the private sector. The capital to run the enterprise, the resources to sustain employment, and the basis for generating tax revenue all come from the financial sector. To ignore such an important role of the financial sector is to ignore the very foundation of our economy. I call upon the reputed private sector institutions to embrace this partnership and evaluate it appropriately.
Let us join hands for policies that strengthen business, entrepreneurship and finance. Because when the banks become weak.
The growth and expansion of businesses is inevitable, and as business activities expand, banking services will become more standard and accessible. Mutual relations and cooperation among banking and business sector will lay the foundation for a prosperous Nepal. Currently, banks invest 70-80 per cent of the business needs. Another series of retail consumer products by banks and financial institutions has made it possible to make the products of the business accessible to the consumers. In such a situation, it is a matter of concern that the contribution of banks and financial institutions is not appreciated adequately.
CBFIN has been conducting extensive research and submitting multi-purpose reports with suggestions to the government, subordinate bodies, Nepal Rastra Bank and other stakeholders ÷for finding a solution to the burning problems of the economic and banking sector as well as the national need. The CBFIN is confident that the recommendations contained in the report, which focuses on strengthening and upgrading the economic and banking sectors, if properly addressed, will help to strengthen the country’s economy as a whole.
Compliance and Worldwide Status
Nepal is a matter of concern for all of us in the Nepal Grey List. CBFIN and its member banks and financial institutions are always ready to join, cooperate and cooperate closely with Nepal Rastra Bank and its related agencies in every initiative to remove Nepal from the grey list so that Nepal is able to fully comply with international anti-money laundering and counter-terrorist financing standards and get out of the grey list as soon as possible. In this regard, the CBFIN will always be with the Government of Nepal and Nepal Rastra Bank.
Although there are problems and challenges in the economy, it has not deteriorated to the point where it cannot be solved. However, the Government of Nepal and our guardian-Nepal Rastra Bank are capable of providing a long-term solution with a clear identification of the problem. We have the capacity to mitigate the problems and challenges on our own strength, but for this, mutual trust, continuous cooperation and mutual cooperation among all the responsible agencies and stakeholders is necessary. We should not delay in moving ahead unitedly to establish the country as an investment hub by making the existing policies and environment more comfortable and favourable, to establish the country as an investment hub and to start a new journey of economic prosperity with sustainable and comprehensive economic and banking development.
Upendra Prasad Poudel, Chairman of the Confederation of Bank and Financial Institutions (CBFIN)
प्रतिक्रिया दिनुहोस्