We need to reassess the credit demand to match the available resource

Currently, banks in Nepal are perhaps facing the most difficult times. The shortage of investment-grade liquidity this time is the most severe in living memory and a deep slowdown in industrial and business activities has also affected banks in many ways. Krishna Prasad Subedi is the Head – Retail Liability, Branding, and Corporate Communication at Nabil Bank Limited. In a conversation with the HRM, he talked about the problems surrounding the banking sector, how Nabil Bank has changed its communication strategy in these difficult days and how banks are using digital platforms for marketing and promotion purposes. Excerpts:

Q: The banking system is facing a prolonged liquidity crunch. How the shortage of lendable funds has affected commercial banks?
A: This is an industrial and policy-level issue that happens in every economic cycle. Basically, it is a mismatch of demand and supply for resource management vs credit business. If you see the industry growth of loans vs deposits, it reflects the clear picture of mismatches that heavily affects commercial banks. The exceeding threshold of the credit-to-deposit (CD) ratio is an example in an example in this respect.

Q: Of late, umbrella organizations of the private sector have raised their voices against the BFIs, accusing them of charging high-interest rates. Do you agree that banks have treated businesses in unjust ways? 
A: Everybody has the right to raise their voice. But the central bank is minutely monitoring the issues and is trying to fix the mismatches in this case; it would be better to support the decisions of the Nepal Rastra Bank (NRB). Banking is a technical area in terms of the money supply business. So, the problems could not be resolved overnight hence it will take time to reduce the base rates of the banks. The cost of resources is high in double digits and asking for loans in the single digit is contradictory. Now we need to reassess the needful credit demand to match the available resource. Shifting deposits from one bank to another bank is not a solution here, we need to add resource creation from the policy level.

Q: Given the current economic slowdown, what major challenges do you anticipate for the banking sector in this fiscal year?
A: The country’s economy has been heavily impacted by the Covid-19 pandemic which is still visible in many areas like hydropower development and the tourism/hospitality sector. These and other sectors will remain impacted in this fiscal year too. However, the recovery shows an improving trend.

Q: Amid a slowdown in economic activities, do you think banks’ non-performing loans (NPL) will increase as debtors have been struggling to pay installments and banks’ interest?
A: I partially agreed with this issue. But the situation is not like that totally; the pandemic has subsided largely and the situation is improving. There will be nominal impacts as the situation will improve gradually.

Q: The central bank recently reduced the spread rate in the recent review of the monetary policy. What impact it will have on the banking sector, especially on profitability?
A: This has surprised all of us. Definitely, this will have an impact on the profits of banks. I must say banking business is one of the most transparent businesses in the country as banks are required to publish quarterly performances and charges and interest rates to the public. So, business leverage should be given equally to all business houses in the country to complement and supplement the financial ecosystem.

Q: Will this reduction of the spread rate bring down the interest rates as anticipated? Or interest rates will only come down when the liquidity situation will be in a comfortable position?
A: I don’t think so. I am not aware of what research was carried out by NRB before taking this decision. I may be wrong if the fact proves that, but this will hit on profit and will demotivate investors. Deposit rates will come down to reduce the base rates and lending rates will automatically come down to single digits in the future.

Q: As Head of Corporate Communications, how Nabil Bank has changed its communication strategy, especially to reach out to customers, in these difficult days?
A: Customers are aware and smart these days. The interest cannibalization trend shows that everyone is asking for higher interest on the deposit side and lower interest rates on the credit side. We are transparent on every pricing that we give and what we take. The official website covers all and monthly publications of interest rates and quarterly publications in national-level print media are the regular communication carriers for us. Additionally, email, text messages, direct calls, and mobile banking app are also in practice at Nabil Bank.

Q: As banks compete with each other to attract deposits by launching multiple savings and fixed deposit accounts with attractive features, do you think effective communication has become more crucial than ever?
A: This is called the Red Ocean Strategy where cutthroat competition happens in marketing. Making products more lucrative than the competitors show how banks are doing during the survival phases that they face from time to time.

Q: How has the massive growth of social media and other digital mediums changed marketing and promotion in the Nepali banking sector?  
A: It is a very good question. In fact, all banks are running their own media through social media. High traffic is in social media, so banks are increasingly using this platform. Having their own communication platform is always powerful and this has been realized by banks as they use social media platforms massively according to audience behaviors.

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