NATIONAL 4 - (Spotlight Weekly)

‘For Businesses In Nepal, The Government Is Almost Irrelevant’

—JEFFREY COX

Jeffrey Cox is the Chief Executive Officer (CEO) of Nepal Grindlays Bank Limited (NGBL), one of the leading private-sector banks in the country. Cox, an Australian national, heads the most profitable bank in the country. Previously controlled by the ANZ Group, Grindlays Bank was acquired by Standard Chartered Bank a year ago. Cox spoke to SANJAYA DHAKAL about key issues in the banking sector. Excerpts:

At a time when government banks are said to be faring poorly, what is the key to the success of NGBL?

We do not want to compare our operations with those of other banks. We only know what we are doing. Banking is a high-volume low-margin high-risk business and unless you get that right it can be very dangerous and easily lose money. We believe we have a very strong credit policy and we have strong control right throughout the bank for risk management generally. Not only the credit risk management, but the risk management through foreign exchange, the way our tellers operate, the international trade transaction and it also reflects the international standing of our bank. Our bank was previously controlled by ANZ Group, which was the AA standard (international rating based on bank’s performance) bank. We maintain that standard in every branch. We believe that is the reason why our bank is strong as it is. Though we can’t comment on other banks, we do know that the risk assessment process there is much looser and weaker.

How do you think banking reform in Nepal should move to bring about financial stability?

The financial regulations that are already in place are satisfactory as a platform for good banking to move forward. The Central Bank should be policing the regulatory requirements for reporting, auditing and publishing the balance sheets in a timely fashion. One of my pet hobbies is also watching the stock exchange. The rules of the stock exchange should be implemented. I believe that there are many stocks listed that should be de-listed or suspended because they are not in conformity with the stock exchange regulations.

The banking and financial sector is experiencing a boom even as the manufacturing sector is doing badly. What could be the reason behind this? Is this kind of boom sustainable?

In my opinion, it is not. There is no relativity in the process of the stock exchange. Our bank is the most profitable in the country. If you look at our ratios, they would be the best in the country. Our credit risk portfolio would be undoubtedly the best in the country. And yet there is another bank listed ahead of us. We believe this is just speculative trading in anticipation of bonus issues, etc. Our bank is more than adequately capitalized and we do not need more capital. We have got more capital than we need by any standard -- whether Central Bank regulations or international regulations. So we are not going to issue bonus shares, which will only increase our capital. What we do is give very strong dividends to our shareholders.

What are the major areas of investment for NGBL?

Ideally, we would like to lend more. But we find it difficult to find eligible borrowers. We have very strict requirements as far as lending is concerned. We are not secured lenders but cash-flow lenders, therefore we look at the future, not the past. People have to come to us with legitimate audited balance sheet and realistic cash-flow forecast and we would base our assessment on that. But if someone comes with accounts that have been specially constructed for other purposes, we are not interested.

Recently, there was a KPMG report that termed public-sector banks like Nepal Bank Limited and Rastriya Banijya Bank as technically insolvent. How would you comment on that report? What do you suggest should be done to improve the conditions of these banks?

Well, KPMG is a highly respected international firm so we respect their report. But since we have not seen the insides of the banks, we do not know what’s going on. However, we are led to believe that this report is correct. It is much better if the inside management and the Nepalese themselves study the banks and divide them into good and bad. Hopefully, the good bank is big enough to be sustainable. The bad bank, depending on how bad it is, is probably going to have to be written off. That can be very painful for the country and for the depositors as the deposits are not insured in this country and neither they should be insured, I might add. Because, then, the responsibility is no longer in the hands of the bank but the government. So I don’t believe in deposit insurance. If these banks are liquidated, depositors will lose. What can be done, therefore, is segregate the banks. A poorly performing government bank is a great drain on the economy. And I don’t think the government should be running banks. The government can do health, education and water but not banks. There’s no government bank anywhere in the world that is profitable.

There has been a rise in the number of private banks after the introduction of the liberalization policy. What do you say?

I am concerned, really. They are aggressive and I don’t think all of them understand the risk-reward concept. So I think there will be a shakeout in time, there’s no doubt about that.

It is said that private-sector banks concentrate their activities in cities only. Does NGBL have any plans to open branches in semi-urban areas?

We are foreign investors. We are not an aid agency. Nor are we the arm of the government. In my opinion, opening a branch in rural areas is similar to welfare, unemployment benefits, social security etc. If opening a branch in a remote area made sense, we would definitely do so. All our studies have indicated that opening such branches is not profitable. Foreign banks in other parts of the world are not required to solve the problems of remote areas. Besides, I am a great believer of postal banks. There are post offices in almost all parts of the country. And it’s quite easy to convert post offices to simple banks. They should not lend money, and if they do, they should do so in little amounts only.

Standard Chartered Bank recently took over control of ANZ Grindlays Bank. What changes would this takeover bring?

Standard Chartered Bank bought ANZ Grindlays Bank and changed the name to Standard Chartered Grindlays Bank. Standard Chartered is probably the world leader in the emerging market. We are now the largest foreign bank in this region. So we have a better understanding of this region and this is very positive.

How has political instability hit the banking sector?

We seem to be able to manage. And, I think, the businesses in general in this country seem to get by. The government is almost irrelevant.

How would you describe the banking sector of Nepal?

In native reform. People have to understand that banking is very serious business. The reform measures are already there; it’s just a matter of policing them.