NATIONAL 8 (Spotlight Weekly)

Vol. 21 :: No. 34
THE NATIONAL NEWSMAGAZINE
Mar08 - Mar14 , 2002.

AGRICULTURAL DEVELOPMENT BANK OF NEPAL

Banking On Reforms

Unlike the two state-controlled and owned commercial banks, ADBN is making a steady improvement with the indigenous reform in progress

By SANJAYA DHAKAL

The case of Rastriya Banijya Bank (RBB) and Nepal Bank Limited (NBL) has made every Nepalese think that government makes a mess of its control over banks. But the example of Agricultural Development Bank of Nepal (ADBN) leads one to think that given a professional and dedicated management, this may not always be true.

While the two largest commercial banks were termed financially almost bankrupt by the reputed international auditing agency KPMG Barents two years ago and their management currently handed over to the foreign experts, the ADBN is not showing any sign of big troubles, rather it is now in better shape than before. In fact, one reason why ADBN is not facing similar kinds of problems is because its management sensed the need for reform four years back. And moreover, it set into motion various reform programs.

"There is no doubt that at present all the public enterprises in the country need reform. We realized the need for the same four years ago when we diagnosed our problem. We, then, identified the areas that needed reform and without the help of any foreign agency, designed the reform program," said Devendra Pratap Shah, Chairman cum General Manager of the bank (see interview).

Though the bank had been upgrading its policies from time to time, most of them were based on sectoral approach seeking immediate solution. Such approaches, however, could not bring desired results in the overall performance of the bank. Repayment performance declined with increased overdue loan and accrued interest. The quality of loan portfolio also deteriorated due to substantial increase in non-performing loans. As a result, the ADBN faced serious problem of liquidity crunch for day to day operation and regular credit disbursement.

"All these problems raised doubts over the financial viability and sustainability of the organization. The implementation of the reform program with the holistic view was, therefore, inevitable," said Shah.

To address the problems, the bank management launched reform programs in October 1997 with the main objective of bringing about improvement particularly in the areas of credit delivery system, repayment and resource mobilization.

Shah claims that because of the reform programs he launched, the bank has made some tangible progress in its financial health in the last four years. According to him, the bank doubled the size of its business in the same period. "There were positive outcomes on our debt-recovery, resource collection, expenditures and incomes. The ratio of debts that had already matured came down and the productivity of employees increased. There have been progresses in other development indicators too" he claims (see box). There was a general perception that ADBN type of bank cannot run its operation on its own and it needs foreign support for the same. ADBN, however, has proved this perception wrong and made more progress during the reform period than what was achieved before when foreign assistance was there in the ADBN.

Buoyed by favorable outcomes, the bank management launched the second phase of reforms this year with the special focus on making accounts transparent. "Unless and until we make our accounts transparent, we cannot make any reform viable."

Established in 1968 under the Agricultural Development Bank Act 1967, ADBN is an autonomous organization under the supervision of the Ministry of Finance. The bank has been working as a premier rural credit institution since last three decades contributing more than 80 percent share in meeting institutional credit needs in Nepal.

The mandate of the ADBN decrees it to involve in the development financing sector, target group sector through Small Farmers Development Program (SFDP) and Commercial Banking sector. The bank is entrusted with responsibilities of initiating effective approaches for the development of agriculture. The bank is committed to raise the economic condition of farmers by availing credit and capital inputs in easy and smooth manner. It is also empowered to finance small farmers on group liability and expand its scope of financing to promote cottage industries. Besides, the bank also acts as commercial bank and mobilizes domestic resources.

The bank's authorized capital is Rs 2 billion and the paid up capital stands at Rs 1.625 billion up to July 2001. The main sources of bank's total financial resources are; share capital (10.14 percent), customer deposits (69.08 percent) and external (16.21 percent) and internal (4.57 percent) borrowings.

The bank has a huge network spread all over the country. Over the years, it has accelerated the pace of its activities and established itself as a premier and specialized agricultural financing institution. The bank lends in terms of credit disbursement, loan recovery and expansion of field level offices. With its network of 610 offices and 4615 staff, the bank has been serving farmers and entrepreneurs alike.

By the end of the fiscal year 2000/2001, the bank disbursed a total of Rs 51.37 billion for various purposes and made a collection of Rs 36.88 billion. The outstanding loan at the end of the fiscal year 2000/2001 stood at Rs 21.40 billion.

At a time when most of the financial institutions owned and controlled by the government are facing serious problems, the example of ADBN shows that if reform-minded and dedicated management is in place, there is no need to run for the donor's support every time a financial institution faces crisis.

Bank Under Capable Management

It is a well-known fact that public enterprises of the country are in a financially deplorable situation because they have been unable to properly execute their responsibilities. This disease, which had started during the Panchayat regime itself, has affected almost all public enterprises in the last 12 years of multi-party system. Excessive politicization, muscle power of employees' unions, corruption, lack of professional management etc have added to the woes of the public enterprises. Even the responsible ministers and government officials have started making similar statements. It seems they have reached a point of no return and there is no alternative to their privatization. As such, the stand taken by the World Bank and other donor agencies, also, do not seem pointless. Practically, however, it is not easy to privatize public enterprise in a developing country like Nepal as politics prevails and even the business communities contribute to make the situation further complicated. The government, however, supports the privatization as it means it will only have to bear the trouble once -- whereas by not supporting it, it will have to constantly bear them. Instead of debating on whether to initiate privatization, therefore, the government has the greater challenge of taking public enterprises to the door of privatization. Furthermore, there are some public enterprises which are so ruined that even privatization may not rescue them. These enterprises are waiting for the inevitable collapse and their situation, naturally, is more painful than the ones included in the list of privatization. To sustain enterprises or to take them to the point where privatization is not opposed, efficient and professional leadership, no doubt, is the first condition. It is not easy to fulfill this condition in Nepal at present due to various reasons. However, it does not mean there are no efficient and professional leaderships here. The example would be the current management at the ADBN led by its Chartered Accountant Chairman cum General Manager Devendra Pratap Shah, who has been involved in the bank in different capacities for the last three decades. Shah was appointed the chief executive of the bank in 2054 (1997) for five years. Earlier, he was the deputy general manager of the bank. The reform programs he launched in the bank has yielded positive outcomes and improved financial position of the bank. If the figures of the last four years are studied, one would come up with startling findings. In the last four years, the size of the bank's business doubled and similar changes occurred in other financial indicators. Surprisingly, it was found that the progress made by the bank in terms of volume of disbursement and collection in the last four years was equal to the one made during the first 30 years (see box). Similarly, the level of Non Performing Assets (NPA) has declined; and the quantity of loan-recovery and profit has gone up. Significant improvement has been made in the field of Accounting Transparency. The productivity of employees has increased and the bank is now able to make necessary provisions for employees' retirement benefit. The ADBN's contribution to development activities like tea-farming, vegetable, poultry, micro-hydro, solar power, farm mechanization, women's empowerment and micro-credit flow has tremendously increased. But Shah says the bank is yet to solve all its problems despite making some progress. He attributes these progresses to the whole "management team" of the bank. Shah says that still most of the time he has to engage in unproductive jobs like having to address "unnecessary grievances" of politicians, employees or other people. He says that although most enterprises accept the politicization of its employees has hampered their functioning, it seems only the ADBN is actively working to minimize the negative fall-outs of this malady - as shown by the improvement in its financial indicators. As a result, the leadership of the bank has been the target of attacks from various fronts. "But we will not bow down because of such unscrupulous attacks," said Shah. The steady progress made by the ADBN is exemplary in the present context.

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