"Nepal is not poor, we're just poorly managed and that is what needs to change first to bring all round development"; Interview with Bhuvan K. Dahal, CEO of Sanima Bank

Bhuvan Dahal, CEO of Sanima Bank with an experience repository of almost 3 decades in Nepali Banking Sector has been through the thick and thins of this industry to reach where he is today. He firmly believes in the value of honesty and integrity and the impact it can create in a person’s life. Similarly Sanima Bank, one of the youngest commercial banks, although young has successfully created an image of itself in the market. In this backdrop, Rachit Agrawal, Sandeep Rana and Aakriti Thakali from Sharesansar visited Mr. Dahal. The excerpts of the interview are:

How would you like to summarize the overall performance of Sanima Bank in FY 2074/75? What are your strengths compared to other banks?

We upgraded to commercial bank 6 years back and since then we have been doing well with above industry average growth rate. If you look at our current accounts’ and saving deposits’ growth rate in last 6 years then we are probably the top in the industry. Similarly if you look at our Return on Equity (ROE), we are within the top 10.  If you look at our profit growth also we are much above industry average. So to sum up, we have always beaten the market. Whatever business ratios you look into, our growth rate is good and is better than the market average.

Having said that, I would also like to emphasize that Sanima’s growth has been consistent throughout. We have not grown haphazardly, be it in assets size or the liability size. If you look at our liabilities side, the individual deposits to the total deposits ratio is almost 65%, probably the highest among private sector banks. Similarly in assets side, our Non-performing Loan (NPL) is 0.03%, the lowest among the banks. Our assets mix comprises of only around 35% corporate or big loans and rest are small and medium sized loans. Thus, our management of balance sheet has been very balanced and the growth rate has been attractive.

To answer your second question, our strength is our team. They are integrated, honest and hardworking. Similarly, our promoters don't interfere with the management and believe in corporate governance.

How has your loan portfolio changed after the introduction of Sanima Online Loan Assessment system?

Actually we haven’t seen much changes in our loan portfolio. The major reason is, this is an online platform and the generation that is more inclined towards internet and online services are youths who are just graduating. So this generation has lower borrowing requirements than the generation just ahead because of which we haven’t seen much change in our loan portfolio. However after the introduction of Sanima Online Loan Assessment system people have shown interest to learn about it, which is encouraging but no significant impact on volume so far just because of it. 

Sanima was in the process of bringing in loan from International Finance Corporation (IFC). How is the progress so far?

We are still in the negotiation phase. We hope to close it at the earliest possible. 

If everything goes as planned, how have you planned to use the fund? What are the hedging strategies?

If everything goes as planned then we may not even need hedging as we can simply lend it in dollar terms though interest rate can be a bottleneck.  There are a number of companies eligible to borrow  in Dollar terms in Nepal itself like import based businesses, Tourism, Airlines etc. Similarly this fund can also be lent to Hydro projects to bring in the machineries from abroad. And if we decide to lend it in Nepali currency, we will explore  options for effective hedging though not finalized yet. 

Sanima Bank is known in the market for very low bad loans (NPA) and balanced rise in business growth. How have you managed to achieve that?

The first thing that keeps our NPL at the lower end is our screening process and the second is our consistent and timely recovery follow-up. In addition to that, we adhere to our set standards and believe in honest operation. In any case if we find any of our employee taking bribe, we sack them.

Thus by remaining true to our policies we have been able to keep our NPL low but at the same time we are also aware that this NPL may shoot up even when one large account defaults. So we are doing our best and giving priority to screening and recovery.

Although NRB hasn’t specified anything, is Sanima planning for any new merger and acquisition (M&A) this FY?

M&A was not in our plan in the past and still isn’t in the near future. Even when the minimum capital requirement was raised by 4 fold, we met our requirement via Right shares/ bonus shares as our existing shareholders were looking for investment avenues. But when NRB increased the minimum paid-up capital requirement, the goal wasn’t just to raise the capital but to consolidate the number of Banks and Financial Institutions (BFIs). So to support NRB’s goal we acquired Bagmati Development Bank which was operating in Sarlahi District with 4 branches. The acquisition was a win-win for all. The number of BFIs decreased for NRB. Being acquired by a commercial bank, Bagmati had a chance to upgrade its technology and Human capital too. For Sanima, Bagmati didn’t dilute our NPL. Our major criteria while looking for acquisition was low NPL and Bagmati had zero NPL, which exactly fitted our checklist.

So we don’t have any new merger and acquisition planned, but having said that we are also not going to ignore when a good deal with a viable proposition comes by.

The rise and fall in interest rates of banks has become very seasonal. Any expansion or contraction in liquidity promptly results in interest rate change and this has been going on for around 3 years now. Is it likely that the similar pattern will be repeated this year too?

In every market, the pricing is determined by the demand and supply. So when loan demand is higher than deposit growth, the rates will naturally go up and vice versa. In a country like Nepal, I assume that whenever there is a stable government and possibility for peace, the demand for loan goes up. So this year too I think the demand for loan will be more than deposit growth that might again lead to credit crunch in the market after Marg. However, the rates may not  rise rampantly as NRB has exercised moral suasion against it.

How can this issue be addressed?

The prime reason for this fluctuation is the size of deposits and with internal/domestic deposits growth only we won’t be able to meet the loan demand. We have a huge trade deficit and the remittance alone isn’t going to cover it every time. So the Balance of Payment (BOP) position is continuously deteriorating. So there are countable ways in which we can increase the size of deposits. They are mainly:

Import substitution sector promotion:

We have a huge trade deficit and trying to increase the export hasn’t worked out very well. So we can promote import-substitution based industries in Agriculture, Cement, Energy etc. If only we can meet our internal demand and decrease import to the extent practicable, a lot of currency outflow can be stopped, which will increase the deposits size internally.

Promoting tourism:

Nepal is a beautiful country with natural wonders and all sorts of climate but still we are able to attract only 1 million visitors a year. If we see Singapore, everything is man-made but they welcomed almost 18 million visitors last year with USD 27 billion income.  So we need to capitalize on our assets – Mount Everest, Janakpur, Pashupati, Lumbini, Lush forests, various trekking routes, rafting  and so on. We can attract tourists interested in nature, culture n adventure. 

Creating an educational hub:

If we see the latest data, we are spending a lot on education abroad including India. Weather in Nepal's hilly region is very nice. So we can upgrade our educational standard and create a hub for intelligent minds around the world. If we rightly plan, we can earn more FCY than we spend in education sector abroad.  

Attracting FDI/ECB

FDI/ECB inflow can be in numerous forms. Currently NRB is allowing us to borrow from foreign financial institutions and in similar manner we need to attract more investments into our country.

We can increase savings and reduce consumption based on imports. 

The debentures and other debt instruments like bonds are still not very popular in Nepal. Sanima has also recently brought 10% Sanima debenture 2085 and most probably the subscribers are going to be institutional lenders. So in the scenario what role can banks play to make individual investors aware of debt instruments and to convince them to buy it?

We can do and are doing small promotions here and there but I think more than us it’s the responsibility of the SEBON to activate, promote and develop this market. So the primary/major role is of SEBON and ours and yours (media) is secondary or supportive.

NRB wants banks to invest more in upgrading employees’ skills and knowledge. What are your plans in this respect?

Sanima bank used to spend around 3% on employee training and development before this rule even came into existence. The quality of Human resource has a lot of influence on the success or failure of a bank especially because we are service oriented organization. Learning is a continuous process and like it is said, “Learning begins from mother’s womb and ends in the tomb”. So we have to continuously train and upgrade ourselves.

So Sanima sends the senior officers abroad especially India for trainings and other countries for exposure. Similarly, junior officers are trained here in Nepal. We have focused on and had continued the tradition of at least one training a year.

Where do you see Sanima bank in 5 years’ time?

We have been doing well, you can see the past trends about how has Sanima grown for the last five years. We have performed well and have beaten the market and our plan for the next year and the years to come is to maintain that trend and perform above industry average. If you ask me about five years down the line then I might not be at Sanima for that long as my tenure will be complete after 3 years (ha ha). Nonetheless my conviction is Sanima will continue to beat the market growth in coming 5 years too as we have a good team.

Can you shed some light on Sanima Capital’s performance?

Sanima Capital is performing fairly well, but the market itself isn’t growing so that has hampered Capital’s growth too. Despite that if we compare with the decline in stock market, we are doing better. Similarly our Mutual Fund’s Net Assets Value (NAV) is also not bad. 

You completed around 2 decades in Nabil and even in Sanima it has been 4 years. So how has your journey in banking industry been so far?

I worked at Nabil for around 22 years and prior to that I was a Government employee at Parliament Secretariat. So wherever I’ve worked I have thoroughly enjoyed. I came to private sector by accident. I was a government employee, and at that time switching to private sector from government was very non-conventional and not thought of. There were ups and downs and I have enjoyed all of them. My major learning is that hard-work and honesty are the major pillars of success. Without hard-work you can’t devise the techniques of smart work. These are the pillars of success because without hard-work and honesty no one will trust you and when you can’t earn trust, you can’t earn respect either.

Final Note:

Like I said earlier, Nepal has a lot of prospects be it in adventure or pleasure. So nature, culture and adventure wise we are very rich and we should be able to attract large number of tourists. We just need to figure out a way to capitalize them. We should be able to harness these resources. We are not poor, we are just poorly managed and with the new generation that needs to change.

We are still stuck in Feudal mentality. When I handshake with a messenger and driver, people get shocked and that is not just right. We are all the employees of Sanima Bank, it is just the responsibility which is different from person to person. The other thing that needs to change is our concept of time. In a country where senior people come 2/3 hour late to a program and the organizer penalizes the punctual people , how can anybody learn to respect time? Former PM Madhav Nepal is however very punctual. Other leaders can learn from him. In Sanima we are very punctual and if in a meeting even if I am late by 1 minute, the meeting starts without me or anybody that’s late and that is exactly the kind of culture we need to develop across the country. We should practice the culture of fairness, not favoritism. It should come from the top of every institution, specially from PM, ministers, heads of constitutional bodies, regulators etc. Unless we practice the culture of fairness and honesty, our vision of Happy Nepali and Prosperous Nepal will just be a dream.