New Nepalese Banking Perspectives in Persisted COVID Era

-Ravi Dhungel 

Nepal Bank Limited

Overview 

The pandemic of COVID-19 is a health issue. Despite being so, this widespread outbreak has severely impacted the global socio-economic cycle as never before. Such impact is bigger than the great depression of the 1930s and broader than the financial crisis of 2008. What is different about the COVID-19 crisis is that it has a human angle attached to it which was never been in any other economic or financial crisis before. This makes it even more complex and hard to deal with. It has disrupted both developed and emerging economies with no discrimination. Only the quantifiable volume of human, social, financial, and economic loss is different in different economies. The severity of the situation can be understood with the fact that World Economic Outlook (April 2020) has predicted a negative global economic growth of 3% (to go up by 8% depending upon the pandemic response and intensity) in the year 2020. The countries with weak health infrastructure, poor economic status, and inefficient financial systems are more vulnerable to this epidemic enemy. With individuals lockdown at home and industrial lockout, there have been remarkably restricted cash, credit, and service-related activities throughout the entire global banking system. There is a very little ejection of liquidity in the banking system with a corresponding relatively high demand for cash. Such a situation is no distinct for the Nepalese banking sector too.

The impact of such a pandemic is driven economic scenario is of high and comprehensive nature in the financial sector too. This has shaken a worldwide banking mechanism which is unarguably the core of the global economic and financial system. More withdrawal tendency among bank customers is pumping out high liquidity from the banking system with low fresh deposits. Moratorium provision has restricted the immediate pumping of liquidity in the banking system. No commercial activities and shut down of industries have interrupted mobility and generation of cash throughout the economy with adverse influence in the Nepalese banking channel. This has compelled Nepalese banks to think and act differently to cope with current and future banking service scenarios. The rule of social distancing, the lockdown driven customer behavior changes, new saving, and investment attitude questioned the viability of the existing service system, the need for product and service modification, etc. are bound to challenge banks of Nepal. All banks must respond to these challenges in different ways. Only this can make their services realistic, reliable, accessible, and effective in their endeavor to survive and sustain in this COVID era.

 

Intimated Customer Service With Social Distancing   

   The epidemic of COVID-19 has forced to reduce personal contacts to prevent its transmission. Personal interactions from distance has become a key part of office and community lifestyle. The use of masks, gloves, and sanitizer is now ‘must’ in day to day home, office, and community culture. The World Health Organization’s social distancing guideline of keeping 6 feet distance from people to minimize the chance for coronavirus to spread is becoming a part of Nepalese banks. Such distance is being practiced in the queue around the teller counter and customer service desk, sitting arrangements for waiting, and a line outside the ATM outlets. Such practice of distancing does nor or should mean any less customer service intimacy. It is just a measure being adopted to avoid viruses, not the customers.

Nepalese banks have to ensure the safety of their employees and customers. For this, banks on their own and under the guideline of Nepal Rastra Bank have already initiated different measures. Fever examination via thermal gun and hand sanitization of employees and customers has been in practice ever since coronavirus entered Nepal. This has added inconvenience and fair level of interruption in Nepalese banking services. But nothing can be bigger than human life safety. Moreover, it will be even more effective if Nepalese banks can use contactless sanitizer dispensers, mats with disinfectants in bank layout, and contactless liquid soap dispensers at bank bathrooms. It will be even more preventive if banks could provide disposable surgical masks at the bank’s entrance. In this regard, the recent Clean Note Policy of Nepal Rastra Bank becomes more vital. Notes and coins could also be a medium for COVID-19 transmission. Hence, to avoid such a possibility, banking machines used for note counting, fake note detection, cash deposit, and cash withdrawal (ATM) has to be kept disinfected or virus free. In this COVID era, Nepalese banks are compelled to go for human safety along with the safety of bank deposits. And other services. This requires more physical and financial resources. But it is a ‘must-do’ for Nepalese banks. However, it should not ruin customer harmony and service intimacy with banks despite rendered through distance and delays.

 

Trust and Utility Through Digitalization 

The pattern and perspective of banking services are changing in this COVID era. All the previous dimensions of banking services have to cope with such changes. Such change should not disrupt the level of trust between banks and customers. The banking services are compelled to add more utilities for the convenience of customers. These banking services ought to be made safer and diversified both physically as well as digitally. Nepalese banks must understand the soaring need for advanced digitalization to ensure customer trust in this COVID era. Only with this, the utility of banking services can be enhanced. The existing concept of a branch and human-oriented banking services is demanding change or even completely wipe off. Current digital platforms need a transformative approach to make it viably safe to store value, move money, and ensure access to credit.

All types of bank accounts should consist of ATM and mobile banking as the heart of the product, not an optional part of these products. This can comply with the telecommunication access to smart mobile, mobile data, and internet services throughout Nepal. Banks of Nepal must prepare for and support the permanent limit expansion of ATM and mobile banking transactions. Extension of ATM outlet and inclusion of more services in mobile banking has now relevantly become significant for future social and economic well-being. The services of cash deposit machines, POS, and QR codes require extensive expansion to ensure easy accessibility to all. A bit longer we have to go for more voice or artificial intelligence (AI) based banking automation with or without robotization. Not just digital wallets, but also Unified Payment Interface (UPI) and international platforms like Google Pay, Ali Pay, Apple Pay, Samsung Pay, etc. has to come on the horizon to facilitate Nepalese banking. All these can make Nepalese banks more trustworthy and enhance the utility of services through digital platforms. This has to be initiated to sustainably survive to cope with the forced changes in this new COVID era.

 

Banking Service Expansion, Accessibility, and Literacy 

We cannot deny excellent banking service expansion, risen accessibility, and growth in financial literacy in Nepal. But the epidemic of COVID-19 has exposed the scope of services and its accessibility level of Nepalese banks. Although the Nepalese banking sector has broadened, it is still not grown substantially enough to be accessed distinctly at the time of crisis like COVID-19. In hand banking services for customers have not yet reached a large base with broader transactional dimensions. Nepalese banks have to think for easy accessibility of minor banking services like account opening/closing, ATM/Mobile Banking renewal/re-pin, account activation, KYC update, loan request application, etc. through bank website or mobile banking applications. This can reduce most frequent visits to the banks aiding safe living and fast banking in this COVID era.

Banking Services and Accessibility (Mid-May, 2020)

  

•   Total number of BFIs stood at 163 including 27 commercial banks, 23 development banks, 22 finance companies, 90 micro finances, and 1 infrastructure development bank
• Total branches of BFIs stood at 9695
• Out of 753 local levels, 746 have a branch of commercial bank
• 187 institutions applying for merger and 45 were formed revoking the license of 142 institutions
• Interbank transaction among commercial banks amounted to Rs.1380.85 billion
• Total revenue and expenditure of the federal government through the banking system amounted to Rs.606.82 billion and Rs.725.61 billion respectively
• Total remittance through banking channel stood at Rs.680.84 billion

 

(Source: Macroeconomic and Financial Situation of Nepal, NRB) 

Nepalese banks have to understand financial literacy is not just confined to the pros and cons of saving to the customers. It is now not just educating about loans, its advantages to be economically self-reliant, and using basic banking facilities. In this COVID era, it is rather providing digital literacy and understanding new saving-investment behavior to develop new banking products. Nepalese banks should work out on a framework for digital literacy in urban and digital accessibility in rural sectors of the country. Financial literacy must focus on making smart customers rather than just aware of customers. It should be fruitful enough to ensure banking access of customers without a regular branch or agent visits. This can ensure a smart customer base with digital access to banking services even at distance from bank branches. By doing this, banks of Nepal can also make feasible banking even at future pandemics similar or different to COVID-19.

 

Monitoring and Regulatory Issues 

The crisis of COVID-19 has adversely impacted the global financial and capital market. Worldwide deposit, lending, remittance, financial instruments, and stock market have gone downsize drastically. Such similar impacts are visible in the context of Nepalese banks. There is no regular deposit and repayment of loans due to individual lockdown and industrial lockout for a long period. The situation is not like previous despite some relaxation in lockdown and economic re-opening, No question of new deposit and lending opportunities at all. Migrant remittance through the Nepalese banking channel has gone down remarkably. The withdrawal trend of past deposits from individuals and industries from banks is not normal yet. Numerous people have lost their income sources either temporarily or permanently. Merchandise trading and service business have no cash generation at all with no current need for banking channels. All these have disheartened and disturbed the entire banking system of Nepal. In such a situation, Nepalese banks need self-monitoring and regulatory as well as revival oriented guidelines from the Government of Nepal and Nepal Rastra Bank. Such monitoring and regulation have to be driven towards solving short, medium, and long term banking issues in this era of COVID-19.

The delayed payment of principal and interest on all kinds of loans during moratorium is only a short-term relief measure for bank clients. But this has delayed the liquidity arriving in the banking system remarkably. The relief measures for banks have been nothing from the Government of Nepal. Most industries, businesses, and individuals have the hardship of paying debt even after the moratorium. Due to this, a significant part of the loans of Nepalese banks is in danger of being not recoverable. There is a challenge of ensuring the sufficiency of liquidity in the banking channel. To deal with all these, CRR and interest rate adjustment is an adaptable method with regular monitoring by Nepal Rastra Bank. The remittance, government transactions, clean note, loan provisioning, IT-based securities, customer compliance, credit administration, etc. have to be more minutely monitored. The monitoring should be justifiable to COVID-19’s severe impact on Nepalese banks. All these aspects of banking in the new COVID era ought to be more frequently monitored than before by both NRB and respective banks independently. Nepalese banks must be ready to accept changing banking laws, act amendments, guideline/directive ratifications, and regular circulars from government and the central bank of Nepal to sustain the financial sector going simultaneously with the persisted crisis of COVID-19.

 

Conclusion

The crisis of COVID-19 has disrupted the global economy and financial system more severely than any other crisis before. Its severity is more complexly destroying as it has a human angle attached to it. It has embedded an unpredictable degree of uncertainty in the global financial system. The risk and uncertainty prevail more strongly in countries with vulnerable banking and an economic system like Nepal. In Nepal, there is a downsized status of deposit, loan, and remittance due to national and international economic scenarios. Nepalese banks are operating with no full fledged resources with no full version of banking  services. They have already adopted COVID driven culture of sanitizer, mask, thermal gun, hand washing, and social distancing in their day-to-day operation. Banks might have to offer more secure and safe services depending upon the wide-spreading of COVID-19 in Nepal. For which banks have to be prepared with no reluctancy and resource sufficiency. While adopting all these safety measures and social distancing, the banks are ensuring less inconvenience to the customers. Moreover, customer intimacy and care should not be harmed at any cost while adopting these safety measures and social distancing practices by Nepalese banks.

This persisted COVID era has proven the relevancy of digital banking services more than ever before in the context of Nepal. Nepalese banks have to offer most of their services through online and digital platforms. But this has to come on more advanced and safer grounds than before. This can ensure more customer trust and utility from banking services. Moreover, the extension of current banking services primarily through digital and automation platforms can reduce customer visits for minor banking affairs. This adds to the motive of social distancing and low crowding. This can be more realistically achieved through digital financial literacy making most banking services available and doable from distance. Similarly, there are no big relief measures for banks as initiated by the Government of Nepal. Banks of Nepal have to overcome this crisis on their own supported by regular monitoring from Nepal Rastra Bank with very little from the government. In a nutshell, the perspective of Nepalese banking is on the verge of change with digitalized customer service abiding by the social distance practices without ruining customer intimacy. This has to be done with most initiations by the banks themselves following monitoring guidelines from the central bank. Only this can make Nepalese banks survive and sustain in this COVID era with good health of banks and the safety of its customers.