I am pleased to report that the Bank, during Fiscal Year 2014/15, recorded a respectable top-line growth in business, with increase in deposits and risk assets by 19% and 16%, respectively. The Bank earned a net profit of Rs. 680 million. Despite a healthy increase in non-fund based revenue, net profit recorded a decrease of 18%, mainly due to shrinking net interest margin and marginal increase in operational cost. However, achieving these results was challenging, to say the least, against the backdrop of continuing political fluidity, policy unpredictability, and lackluster economic growth, further compounded by the high liquidity, leaving banks open to even greater market risk and fund management challenges. The current economic environment, with low growth and moderate credit demand, has led us to focus even more on expenses and efficiency.
The Bank’s earnings per share stood at Rs. 25.59 and return on equity at 13.05% against the industry average of Rs. 27.04 and 17.91%, respectively.
In 2014/15, we further strengthened our capital base with a comfortable 12.49% capital adequacy ratio against the minimum stipulated regulatory requirement of 10%, providing a comfortable cushion against unanticipated external and internal adverse shocks that may arise due to the uncertain environment that we operate in.
During the year, banks in Nepal faced the onslaught of continuous excessive liquidity, subdued credit demand, virtually non-existent investment avenues for surplus funds, and constant fall in margins. The business climate was further deteriorated by the devastating earthquake that struck on April 25, 2015, and subsequent tremors, substantially impacting the business in the last quarter of the year. During the fiscal year, underwriting of loans and advances by banks and financial institutions saw a growth of 17.5%, compared to a growth of 14.4% in the previous year, faint indications of improved credit demand. Unfortunately, the excess liquidity continues to prevail and credit demand remains subdued, thus putting pressure on pricing, with no perceptible improvement in the investment climate, which makes this year even more challenging.
With the promulgation of the Constitution, the country has entered a new era, where economic and social transformation is widely expected to be the top agenda to propel economic growth and development. Similarly, timely announcement of reform-oriented budget, formation of National Reconstruction Authority for rehabilitation and reconstruction work, etc. are expected to provide a boost to all quarters of the domestic economy to spur the economy into a higher growth trajectory. However, challenges remain to address the demand of agitating parties, structural reforms for setting up federal states, spending the planned capital expenditures, and acceleration of massive post reconstruction and rehabilitation work. The silver lining on these challenges is the opening of new opportunities, as the country is expected to march towards economic development, ending the long political deadlock. The massive rebuilding and reconstruction plan means addition of new job opportunities, new business opportunities, and improvement in the overall business climate of the country.
In order to strengthen the capital base and create a robust financial system, the central bank of Nepal, Nepal Rastra Bank, has directed banks and financial institutions to increase their minimum paid-up capital from existing Rs. 2 billion to a significantly higher amount of Rs. 8 billion by the end of Fiscal Year 2016/17. Banks and financial institutions are expected to resort to mergers and acquisitions for raising their paid-up capital, besides other options. However, challenges remain, given the very short time period for increasing the capital.
The Bank has formulated a long term five-year strategy, ‘Strategy 2020’ that envisages the Bank’s strategic intent and aspirations to be achieved by the end of the strategy period. The Bank shall adopt customer-centric business model with the sole aim of enhancing customer experience and satisfaction, and high leveraging of information technology capabilities for process automation, thus bringing superior operational efficiency and optimum turnaround time. This strategy is expected to bring a paradigm shift by the end of the strategy period in terms of the Bank’s overall position, brand image, and brand recall.
The Bank has always adopted prudent risk management practices, with strong focus on fundamentals of risk management, high level of corporate standards, a zero-tolerance compliance culture, and performance-driven work culture. The Bank values the trust and confidence of its customers, and is equally committed and responsible to be a safe and secure institution, where customers’ deposits are protected, and payments can be made with absolute confidence. It is important that the Bank behave with integrity and respect at all times, and that we balance our risks to produce sustainable profitability. The Bank always strives to make a difference through the services we provide, as well as by being a good corporate citizen through payment of taxes and contributions to society through our corporate social responsibility (CSR) wing NIC ASIA Foundation, keeping in mind the larger interest of the community that we operate in.
Finally, I would like to place on record my sincere appreciation and gratitude to all our customers, regulators, vendors/suppliers, business associates, and shareholders for their continued support throughout the year. I would also like to express my heartfelt thanks to all of my colleagues at the Bank for their superb efforts and excellent contribution, and my Board of Directors for its unstinted support, dedication, vision, trust, guidance, and belief in our people.
I am confident that NIC ASIA Bank’s unique culture will remain intact, that it will evolve and strengthen over time to meet whatever challenges it may encounter, and that it will continue to enhance value and meet the expectations of all our stakeholders in the days ahead.
Chief Executive Officer