‘It is important to have prudent management regime’

FMO, a Dutch development bank, has established strategic partnership with NMB Bank as per its objective to promote renewable energy and real sector of the economy. FMO has 20 per cent stake in NMB. Earlier, FMO had 14 per cent stake in Clean Energy Development Bank, which merged with NMB Bank along with other financial institutions namely, Bhrikutee Development Bank, Pathibara Bikas Bank and Prudential Finance Company. FMO raised its stake in NMB Bank as its stake was diluted to three per cent in the merged institution. Pushpa Raj Acharya of The Himalayan Times caught up with Nico Pijl, representative director for NMB Bank from FMO, to know more on how FMO is working with NMB Bank. Excerpts:

NMB has merged with a few financial institutions in a very successful manner under the guidance of FMO. How would you like to explain the position of NMB after the merger?

It certainly creates an opportunity for NMB Bank as it has the largest branch network in the country. We are covering a wider part of the country with 84 branches. It is an opportunity for us to provide better services to potential clients. We are in the central stage of growth for the long-term future. Now, we are gradually taking a prominent position in the country’s banking sector. As per Nepal Rastra Bank (NRB)’s regulation, paid-up capital has been increased. The other positives of NMB are it is focusing on energy and agriculture sectors, among others. We are providing services to a wide range of clients through the subsidiary microfinance and NMB Capital.

What should the bank focus on to mitigate possible risks that can emerge in the future as it has merged with four financial institutions?

Banks are in the business of risk taking. They might have to face any type of risk like credit risk, market risk and operation related risk. It is important to have prudent management regime, which NMB has paid attention to. We have been following NRB’s rule in terms of diversifying portfolio and strengthening risk limits. We have also developed some rules internally through the board.

FMO has 20 per cent stake in NMB. What prospects do you see in the bank?

FMO believes that NMB has the prospect to become a leading bank in Nepal. It has a philosophy to promote the real economy focusing on value-based banking and through this strategic partnership we can build business by supporting the real economy in a sustainable manner. We not only focus on profit but the wider planet and the people and in serving real economy. FMO is one of the leading Dutch bilateral private sector development banks. We are active in more than 80 countries in partnership with a lot of financial institutions. These institutions create a network and we can all work together with NMB Bank. FMO itself is active in the energy sector, especially renewable energy. Nepal has huge potential in hydro energy. It is not only the domestic market but neighbouring India and other South Asian nations that are also potential market for energy produced in Nepal. We can contribute to the country’s energy sector development through our expertise and financing. FMO has made a lot of transactions in renewable energy and hydro. That is something FMO can do together with NMB.

Does FMO have any immediate plan to invest in large scale hydropower projects in Nepal?

Energy sector development is very critical for Nepal. We all know that energy situation was very difficult in the country last year as the supply routes from India were blocked, which means self sufficiency has become a crucial issue. We always stress that real economy has to be developed in Nepal because the country is very much dependent on remittances from migrant workers. Over-dependence on remittances for foreign currency earning is risky. For example, the diplomatic crisis in Qatar could result in slowdown in flow of remittances from there. Such situations make the country vulnerable. To make the country more self-sustainable, real sector should be developed and infrastructure is also needed in terms of development.

You have mentioned that infrastructure development is critical to unleash potential of economic growth. How can financing by banks in infrastructure development be increased in the coming days?

Engagement of the private sector in infrastructure development could raise the financing from the banks in infrastructure projects. I know there a few private parties contemplating to develop infrastructure in the country, but there is lack of clear rules and regulations regarding participation of private sector. As infrastructure is for public usage, agreement between private sector and the government with good set of rules is required. In many countries there are private railways, toll roads and other infrastructure. There is possibility of private sector involvement in toll roads, among others. Involvement of private sector depends on opportunities.

As a majority of financial institutions in Nepal are largely focused on short-term profit oriented sectors, what do you think needs to be done to encourage them to increase credit to real sector?

This is all about taking a broader view of stakeholders’ value. It is a moral value of banking that you should not only look into profitability. As a bank you have a responsibility to the society too. So banks should look at the public and take care of its staff.  They have to make sure that they add value in the economy, which could happen only through real sector lending. Banks should also contribute to the environmental aspects to save the planet. The planet is all about environmental aspects and we have to mitigate climate change related risks. This is why we are focusing on renewable energy. We have to learn lessons from the western financial crisis. Money was changing hands for short-term profit at that time and it created nothing other than the bubble in the economy. Value based banking, which we are promoting is also about responsible lending practices and promoting environmental safeguards.

Many people feel that the number of banks we have is high for a small economy like Nepal. What is your say on this?

There are sufficient opportunities for banks to compete but financing risky ventures is not good for banking sector. We have seen a situation of credit crunch. Hopefully it is a temporary phenomenon.  Post-earthquake reconstruction has started gathering momentum, which means more money will flow in the economy. More money means there will be more business activities and more demand for credit in coming days. For the sustainability of the banking sector, real economy has to start growing. We can expect the real economy to flourish along with stability in the country.

FMO has diverse experience of working in many countries. How can NMB Bank utilise this?

FMO has a huge network in relation with financial institutions of more than 80 countries. One area is FinTech — a new type of financial service making use of technology. From international perspective FinTech is growing and it is important for Nepal too. Through FinTech we can provide service in rural areas, which are not served by banks and financial institutions. With the spread of cellular phones, Bangladesh has wonderfully utilised technology to expand financial services in the countryside. FMO can assist NMB to find the best way to work here in Nepal by taking into account the experience that FMO clients have in other countries. In addition, NMB has become a member of Global Alliance for Banking on Values. This network could be utilised for technological advancement. Apart from that, as a bank here in Nepal, we would also like to strengthen our presence in small and medium enterprises (SMEs) sector. This is an area where FMO has broad experience and can provide assistance.

The country has been eagerly looking for foreign direct investment. How can FMO help bring FDI in Nepal through its network?

We can assist investors to explore opportunities in Nepal as a good investment destination. If there is any international developer for hydro or in other sectors, we can assist them to find out opportunities in Nepal.  On top of that FMO has a large network of financial institutions in the international market from where we can bring syndicated financing. There are many areas of cooperation that we can utilise. This is why we have started strategic partnership with NMB Bank.

Source: The Himalayan Times