Nepali Times Asian Paints
ASHUTOSH TIWARI
Strictly Business
Banking basics


ASHUTOSH TIWARI


The leadership of Nepal's banking fraternity faces many challenges. Here are two challenges for which it needs to have collective plans that it can execute in the next two years.

Macroeconomic research: Nepal is probably among a handful of countries that lets some bankers and accountants play the role of thoughtful-sounding macroeconomists in public.

The reason is simple. Most trained macroeconomists, that is, a few who returned to Nepal after earning higher degrees abroad, are either busy consulting for donor agencies or they haven't kept up with the changes in the discipline, especially in the light of the recent Great Recession.

Since the public does confuse finance (a slice) with macroeconomics (the whole), this makes it easier for some articulate finance professionals to mouth off on the broader issues of employment, inflation, national income and productivity, even when what they say amounts to nothing more than platitudes.

But this ignorance reduces the substance of conversations that bankers have with their regulator, the Nepal Rastra Bank (NRB), which is filled with professionals with degrees in economics. As such, apart from making sure that they are not on the wrong side of the NRB, most bankers are not able to deal with NRB staff as intellectual equals who can honestly counter-cite evidence from other economies as to what will or won't work in Nepal's banking sector.

When NRB proposes pay cuts for bank's CEOs, for instance, most have no choice but to agree, even when they privately bristle at the suggestion. Likewise, when NRB turns down a request to allow a new financial product to enter the market, bankers' private criticisms signal that they are quick to attribute the reasons to personalities and attitudes rather than to economic reasoning.

One way bankers can beef up their institutional expertise on macroeconomics is to hire research-oriented economists, set up research departments and start producing papers and briefings that can be distributed to the media. Some individual banks have already done so.

But there's a need for collective effort: to pool resources to strengthen the research output of, say, the economists that are to be hired at the Nepal Bankers Association (NBA). Else, a surrender of the industry's intellectual leadership to isolated accountants and some degree-smug economists at the NRB does not help banks to collectively take a pro-active stance for the industry's growth. If that's the case, then they'll always be reacting to others' views and criticisms, and not be able to set the agenda themselves to take the conversation forward.

Creating effective boards: As the number of banks goes up, the NRB will have to extend its supervisory duties. One way it does so is by instituting higher standards of corporate governance. As governance standards go up, there will be a greater demand for qualified independent board directors.

The ugly truths in the market are two: there is a severe shortage of such board directors, and those who do get invited or are elected to become directors have little knowledge and training as to how they can be effective in discharging their responsibilities on behalf of the shareholders.

As such, again, institutions such as NBA have to step in, and offer training programs and counseling sessions to board directors. If banks these days require their entry-level staff to go through certified training programs, why wouldn't they want their board directors, the very representatives of the owners of banks, to go through appropriate training programs too? After all, having a diverse pool of effective, qualified trained and duty-focused board directors is in the larger interest of the financial community, and of Nepal.



1. Prasanna
Corporate governance is important. Bank directors are sahus. They run banks like trading business.

2. sambhu Guragain
thanks ashutosh ji its good news for all nepali bankers Sambhu

3. Anjan
I echo your sentiment. Having worked in Nepal's banking industry and now pursuing doctorate in economics(US), I myself have witnessed how fragile the state of R&D effort, in general, is in our banks. I sincerely doubt if they ever present even a thoughtful assessment of macroeconomic environment in their loan appraisal. They are driven more by cash flows and accounting statements without reflecting on how those projections can change with change in broader economy. On a separate note, I was quite taken aback when the pay limitation measure was announced. Apart from some hullabaloo, there wasn't even any attempt to present a newpaper article assessing the policy stance let alone stand up to it.

4. pwelas
aren't many banks there just to turn black money into white?

5. gaule_hero
IMHO, the main hurdle of doing macroeconomic research in Nepal is the lack of "real-time" economic data. From what I know, the only relevant macroeconomic data that come with any regularity is inflation from NRB but that also comes with 4-5 months delay (its November and the latest inflation data is June). National accounts data like GDP and its components (C, I, X, M, G) and its derivatives (productivity) come with at least 2 year lag (the latest is 2007 at the CBS website), and the labor force data is update every 5-7 years with National Labor Force Survey (the latest is 2008 and the one before was 2001). I WONDER HOW ANYONE CAN MAKE COMMENTS ON NEPAL'S ECONOMY LET ALONE MAKE POLICIES WITHOUT HAVING A GOOD HANDLE ON LATEST ECONOMIC DATA. Last year, I tried to do a very basic data analysis on Nepal's labor force and I could not do it because of lack of data. On another note, the author is right that "the Great Recession" will likely cause a revolution in macroeonomic thinking but that's likely to be NOT very relevant to under-developed economies like Nepal.

LATEST ISSUE
638
(11 JAN 2013 - 17 JAN 2013)


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