"Doing business with China was daunting until NMB along with four other banks cracked the deal”; An exclusive interview with Mr. Sunil KC; CEO of NMB Bank

Doing business in China or with China has always been taken as a mystery. The cultural, traditional and language barriers are taken into consideration before any deal is undertaken. Even the international parties find it very daunting while undergoing a deal with Chinese counterparts whether in the presence or absence of Guanxi (Chinese corporate network community). Although Nepal and China share a major part of the border, our country has usually sidelined the opportunities that can be undertaken with China. Our economy has inclined its business with the other neighboring country i.e. India however, has signed very few business deals with China. Banking sector contributes a major part in Nepalese economy yet the sector rarely considered China for the foreign deals. However, with the initiation of NMB along under the leadership of Mr. Sunil KC with other 4 banks, China has been set as a benchmark to bring in foreign loans in the country. The interview discussion revolves around the foreign loan deal with Chinese-Nepali joint venture, the performance of NMB and few macro-economic issues. 

Interviewers: Rachit Agrawal (BOD), Dheerusha Tiwari and Krishna Khatiwada

Interviewee: Mr. Sunil KC; CEO of NMB Bank Limited

Author: Dheerusha Tiwari

Mr. Sunil KC spent 28 years of his career in banking sector. Starting from the then Grindlays Bank of Nepal, KC worked in a number of departments and undertook head of global markets as his last responsibility in SCB. On May of 2018, KC marked one decade of his accomplishment at NMB. His journey started at NMB when he joined the bank in 2008, remained deputy CEO in 2010 and finally became the CEO, last year.

The story behind NMB’s performance:

• NMB has been performing very well. Along with awards such as Bank of the Year 2017, The Financial Times, London and Certificate of merit- Frost and Sullivan and now finally, IFC award: “Best Issuing Bank Partner in Fragile Countries-2017-South Asia”. Any secret recipe behind it?

In a consolidated banking industry, our approach of working differentiates us from the rest of the commercial banks. We have three major factors that differentiate us from the rest:

Value based banking: NMB is the only bank working on value based banking. Our focus in on those sectors where the country’s overall thrust lies in. We commit towards the overall socio-economic development and contribute in energy and SME sectors. This is the major reason why international companies like IFC and other reputed companies are behind NMB. The joint venture with FMO proved to be the one of the highest investments made in this part of the world.

Team of experts: What differentiates us from others is our team. If we benchmark NMB with two types of banks: the one who started with us and the one who started before us. Today, we are ahead of those who started with us and almost near those banks who started 30 years prior to NMB. This is the result of professional expertise, enthusiastic and determined team at NMB.

Corporate governance: Corporate governance comes as the final factor that has contributed to success of NMB. We enjoy a cordial relationship between board and management.

• Can you tell about NMB’s Hongshi deal?

This dates back to three years when one of our clients belonged to local promoter of Hongshi cement. We came to know that they were in the process to bring in the largest joint venture with one of the largest cement factory i.e. Shivam Cement. Their initial debt was about 22 billion whereas total project plan was Rs 34 to 35 billion. During that period, paid up capital of most of the banks weren’t around that of current size. Based on that, it was impossible to bring in such loans even if 4 to 5 banks would have come together. NMB, therefore, recommended the clients to look into other forms of financing. One of those was Standby Letter of Credit (SBLC) from Chinese bank. In such financing, the financial guarantee is issued by Chinese bank. However, we will be financing against that bank risk for the local project in Nepal. In this way, we are not exposed to the project risk directly. This also ensures our clients’ protection against foreign exchange risk. This unique structure also does not put any limitation to Single Obligor Limit.

• What are the challenges that NMB will now face from the Hongshi deal?

The project construction has already been completed within 16-17 months of set up. This is, in fact a new benchmark that has been set up in the cement industry. The production has also been initiated since May, 2018. Now, the cement factory has to face the competition in local market. Having said so, the competition in cement industry is proliferating day by day. So, if the company manages to pull off the competition, one of the big challenges will be resolved.

Besides, they might now require more funding for their branch expansion so, this might be other challenge if we look into the liquidity scenario of the country.

However, after my visit to one of their outlets in China, we are convinced that they have the best product quality. Moreover, Hongshi, itself ranks as the top 10^th cement manufacturer in China. So, we are quite confident that the upcoming challenges will be resolved.   

• How challenging was it for NMB to convince that the bank can pull off the deal?

Initially, our Chinese team was very concerned with the size of Nepali banking industry. When the team of Nepal met Bank of China, they compared the balance sheet size of Chinese bank and ours. Initially, the Chinese counterparts were quite hesitant for the deal. However, with a number of presentations, discussions, analyses, future plans and projections, and of course my experience in dealing with foreign parties from SCB, me and my team were successful in ensuring them that the deal was in the right hand. Initially, we faced challenges but those challenges were worth the outcome that we have attained. This deal has set a track record for other upcoming foreign deals for Nepalese banks.   

• Are there any other similar deals that NMB is working on?

NMB has been the first bank from Nepal to close a deal worth two million dollar from International Financial Corporation (IFC). Now that we have finalized the deal with Hongshi Shivam, we are in the process of finalizing two more deals with other institutions. One among these has already been approved by the central bank. The focus of NMB is to bring in more loans from productive sector that caters the need of agriculture, hydropower, manufacturing and tourism industry.

• Is NMB working on its debenture issuance?

I don’t want to comment much on this. But we are in the process to bring in NMB debentures. This will add value to our balance sheet being independent to the fixed deposit. Furthermore, debenture is one of the flexible tools in terms of liquidity and CCD ratio. We are in the process, however, no exact information can be provided at this point.

• Post the issuance of debentures (if happens), Hongshi deal and other deals, what impact will be there in the financial statement of NMB?

It will definitely help to grow our balance sheet. We are trying our best to grow NMB’s balance sheet by more than 20% if the situation favors. Currently, our balance sheet is 1 billion dollar. If we are successful with alternate instruments, there will be a major growth impact in the financial statements.

• How is the performance of NMB’s subsidiary companies like NMB Capital and NMB Microfinance?

Among our two subsidiaries, NMB Capital is leading in the merchant banking industry. It has been coming up with many innovative ideas. We have renowned name at international platform provided that we have already received mandate for issuance of local bond from IFC. NMB Capital is also working on its mutual fund scheme and help in the substantive growth of capital market. 

Similarly, NMB microfinance which has approximately 78 branches is no less. It has been expanding its outreach among the rural areas where access of banking services is limited. We are trying to integrate our business with NMB microfinance so that we can expand the outreach and build a competitive advantage to both organizations.

• What are the unique products NMB Bank is offering to its valued customers?

Generally, the banking industry in Nepal offers homogenous products to its clients. This is one of the major complains from the general public at large. However, NMB has been introducing innovative products frequently. For instance, we introduced channel financing product which was not present in Nepalese banking industry some time back. Against the corporate principle, we are facilitating the clients’ dealers through such products. Our multinational corporate clients are also enjoying such facilities.

Likewise, we are also coming up with service oriented products for deposit which is different from the regular nature. Couple of months ago, we introduced a deposit product, in which NMB’s ATM cards can be used in any other banks’ ATM machines without any associated charges by the clients.

Aligning our business with our tagline –“NMB; Sambriddha Nepal ko lagi”, we have loan products starting from microfinance loans worth Rs 50 thousand to syndicate loans worth Rs 5 billion. So, NMB entertains all kinds of loan products. However, we are building our core competency on SME, micro SME, retail banking, energy, hydro and other alternative renewable energy. We support those products that support our real economy. Our facilities are well perceived by our customer base which is more than 565 thousand.

The macro-economic discussion

• Although the CRR rate has been altered yet the banks are announcing higher interest rates, is there any possibility for interest rate to come down any time soon?

The interest rate is defined by the demand and supply phenomenon of the market. The interest rate is likely to be stable than the years prior to this. However, as per my personal understanding, there will still be pressure on interest rates in the near future. Now, we have seven different state governments so, these states will have their own recurring expenditures. They are further allowed to raise their fund through government securities. The government plans to raise 173 billion of funds through government securities such as treasury bills, this year. Previously, it stood around 125 billion. Government has also targeted credit growth of 20% while economic growth of 8%. Thus, a number of infrastructural activities will take place demanding more credit disbursement. Although government has opened avenues for borrowing from abroad however, the issue of interest rate can be attributed to trade deficit and negative balance of payment. So, until and unless, we address these two major issues, interest rate will remain at the higher range. All this requires new financing and funding. Although interest rates are expected to be stable, yet it will be in an increasing trend. 

• What will be the growth forecast of banking sector is coming years and where do you see NMB Bank in coming 5 years down the line?

Until 2023, i.e. five years down the line, NMB will be prioritizing agriculture, energy and education in terms of investment. We want to grow steadily by 3 to 4 multiples of GDP growth. The average growth of the economy has been around 4.5% and that of banking was 20%. Back then, even the political scenario of the country was not stable. However, now that we have one stable government ruling, we can expect positive growth of economy and the banking sector.

There is enough room for optimism yet a lot is to be done in terms of clarity in policies, financial literacy and resource allocation. However, since the overall banking sector is moving in a right direction so; 25 to 30% of growth would not be difficult to attain if better avenues for funding is exposed.

• Five years down the line, can we expect NMB to be among top three banks?

That’s what we are planning. However, our aim is not simply to be among the top in terms of ranks but rather to be the most preferred bank. We are prioritizing four basic components as of now. Those are customer centricity, valued employees, value based banking and superior financial portfolio.

• Any suggestions for the youth?

Our country today is well positioned to seize opportunities as lots of investment is coming in, one party rule system has been implemented and public private participation for the economic development is geared. This is the age of youth for Nepal so; be positive, optimistic and the driver of change. Keep on learning as learning never stops. There is no alternate to hard work. Even after spending so many years in this sector, as a CEO, I have been working from to 9 to 7 and at times even more than that, so hard work never ends.

(We wish NMB best wishes for its upcoming ventures. We hope our investors enhanced their insight on the vision of NMB Bank. Please feel free to share your opinions in the comment section regarding the issue. Do you see NMB’s scrip in your portfolio?)