Internalising and practicing the values based banking, NMB Bank is moving ahead by establishing new milestones in its journey.
September 3, 2018 is going to be one of the most remarkable dates in the banking history of Nepal. On this very day, a project loan syndication agreement amounting to Rs 16 billion was signed between the representatives of a group of banks led by NMB Bank and top officials of the Hongshi-Shivam Cement, a Nepal-China industrial joint venture. With Rs 6.75 billion, NMB Bank led the loan syndication which includes Nepal Investment Bank Limited as the co-lead with Rs 4 billion followed by Prabhu Bank with Rs 3 billion, Everest Bank with Rs 1.25 billion and Nepal SBI Bank with Rs 1 billion.
NMB Bank has played a crucial role in materialising the project financing of Hongshi-Shivam Cement which is the largest project loan syndication in Nepal till date. According to the bank’s CEO Sunil KC, it became possible due to the project financing experiences of NMB Bank and its cordial relationship with other domestic and foreign institutions. “We have been working with the Chinese banks for the last 8-10 years. Due to our experience in handling large project syndication deals and good relationship with corporate clients, we were mandated to become the lead financier for the Hongshi-Shivam project. To make this happen, we really worked with the project developer and other partners like legal counsel, Chinese banks and regulators to close the deal successfully,” he says. KC believes that the NMB Bank-led initiative is a stepping stone for beginning a new era of industrial sector project financing in an unindustrialised country like Nepal. “Initiatives like this will help jumpstart manufacturing activities which will ultimately lead to industrialisation in the country,” hopes KC.
According to KC, the loan would help to establish one of the largest cement factories with 6,000 ton nes capacity per day in Nepal. Such deal helps in reducing foreign imports to domestic projects and also imparts positive message to international world encouraging them to bring more FDI in the country.
Started in 1996 as Nepal Merchant Banking and Finance Company, NMB became a class ‘A’ bank in 2008. In its 22 years of journey, the commercial bank has emerged to become a leading financial institution in Nepal driven by value-based approach, banking innovation, progressive business model and social obligations. “Consistent growth and superior financial performance are the major factors attributing to our present day position,” notes KC. After becoming a commercial bank in 2008, accession to the Global Alliance for Banking on Values (GAVB) in 2013 was another major milestone for NMB Bank.
NMB is the only member bank from Nepal in GAVB, an independent worldwide network of banks whose objective is to use finance to deliver sustainable economic, social and environmental development. Formed in 2009 in the backdrop of the global financial crisis of 2008/09, GAVB is composed of a diverse range of banking institutions serving the real economy. As a GABV member, the focus of NMB has been on contribution to economic, social and environmental sectors of the country. In 2017, NMB organised a global conference of GABV in Nepal. Another milestone for the bank came in 2015 when four different financial institutions namely, Clean Energy Development Bank, Bhrikutee Development Bank, Pathibhara Bikas Bank and Prudential Finance Company merged with NMB Bank following the new paid-up capital requirement announced by the Nepal Rastra Bank in the Monetary Policy of 2015/16.The merger enabled the bank to expand its network all over the country. Earlier in 2010, NMB Bank diversified its activities by establishing NMB Capital and NMB Microfinance as its subsidiaries. For its persistence, performance and services, among other parameters for evaluation, NMB was named as “Bank of the Year Nepal” at the prestigious “Bank of the Year-2017” awards organised by renowned British magazine The Banker.
International Joint Venture
NMB is among the few joint venture banks operating in Nepal. It is a JV of Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden (FMO), a development bank with stakes of the Dutch government and large Dutch banks. In 2015, the bank welcomed one of the largest Foreign Direct Investments (FDIs) in the Nepali banking sector through 20 percent equity of FMO. “We brought about USD 30 million in terms of FDI in the country.”
FMO is helping the bank in different segments like SMEs and micro SMEs. In the meantime, it is helping the bank’s staffs to get exposure to different international markets.NMB is the first bank to bring in foreign currency loan from IFC in Nepal. It was also awarded from Best Trade Partner Bank of IFC in 2018. KC says, “We have shareholding from Employees Provident Fund (EPF) which holds about eight percent shares of the bank. We have also received investment from a Malaysian company.”
Then and Now
“It was not easy for us when we began our banking journey. We had a small balance sheet of less than Rs 2 billion. We had just 30 to 35 people and a single branch. We had to compete with established banks,” recalls KC. He further describes, “Starting from such conditions, we have overcome many challenges including unstable politics, sluggish economic growth, market volatility, etc. Despite these, we gradually managed to perform consistently. Shifting to a class ‘A’ commercial bank opened wider scopes and opportunities for us. We compete as a commercial bank and have achieved sustainable growth. Today we have a sizeable balance sheet with adequate and sound capital base from where we can easily take the bank to the next level with our joint venture partner FMO.”
Hedging Facility for Fund Asset Growth
KC shares that banks in Nepal are currently relying on the fund asset growth through deposit mobilization only. Recently, the central bank has allowed commercial banks to borrow in foreign currency. “The current provision allows banks to borrow foreign funds equivalent to up to 25 percent of their core capital. If it is increased to up to 50 or 100 percent, it will help us to bring more funds.”He adds that banks should get hedging service from the central bank because when funds come in the country in foreign currency, the banks carry lots of risk. “So, if the hedging is provided, we could lend money to borrowers at reasonable interest rates. At present, Nepal needs a more active capital market so that we can rely not only on deposits from the customers but also on debentures and bonds to raise funds to form the asset. Institutions like the Employees Provident Fund should start investing in long term bonds or debentures so that those funds can be utilised by the banks for further funding or assets growth in productive sectors,” suggests KC.
NMB Bank being a values based bank is focusing more on core sectors like agriculture, infrastructure, tourism, agriculture, energy and education. It has been supporting microfinance companies, subsidiary entities, SMEs and micro SMEs providing them loan from Rs 50,000 to Rs 50 million. “We aren’t investing in speculative sectors. Our major focus has been on financing the sectors which directly support the real economic growth of the country.” Last year, NMB bank was selected as Handling Bank in CREF’s (Central Renewable Energy Fund) Financial Management Mechanism, one of the subsidy funds under Alternative Energy Promotion Center (AEPC). NMB facilitates CREF in disbursement of subsidy funds to vendors and channelising credit in renewable energy sector.
The bank at present has been providing its services across the country through its 110 branches and four extension counters and over 94 ATM outlets. KC explains, “Since Nepal has just entered the federal set up, we will hold on for stabilising the 30 branches opened last year. Once they get stabilised, we will again look for branch extension or alternate channels as required.”
According to KC, the bank has a balance sheet size of above Rs 105 billion with deposits totaling to about Rs 85 billion and loans amounting to about Rs 78 billion. Considering the subscribed FPO up to 25th June, 2018, it has a paid-up capital of Rs 8.74billion.
Beside economic activities, NMB has been carrying out CSR activities aimed at raising the livelihoods of people. It conducts CSR activities considering the environmental issues. According to KC, the bank spends at least one percent of its total net profit on CSR activities every year. “We are working on an Integrated model village in the eastern part of Nepal. We are supporting different other initiatives.”NMB with its tagline ‘Sambridha Nepal Ko Lagi’, has been working with International Center for Integrated Mountain Development (ICIMOD)and other similar multinational agencies in various sectors.
- Relationship with FMO and membership of GABV
- International recognition and partnerships
- Good Corporate Governance
- Strong Management Team
- Prudent Risk Culture
- Young/dynamic and talented pool of staff
- Branch Network and Subsidiaries.
- Market share in retail and SMEs is relatively low
- Nepal’s federal structure and stable government
- Growing business in various sectors
- Growth of SMEs and micro SMEs
- Threat related to cyber attacks
- Technological disruptions