The Alliance wants to ensure that banking is a healthy and productive system of society.

Could you walk us through what GABV is and what is their presence in Nepal?

The primary and exclusive driver of business decision of the majority of the banks is based on the profitability of the services provided even if the by-products of those decisions do not deliver sustainable economic, social and environmental development. Such a focus on short term profit maximisation would mean banks will ignore social and environmental considerations with billons of people financially excluded. The banking system is normally seen to be competing to become bigger in terms of size of their balance sheet and profit. We faced a question mark on the banking model that promoted banking system to become big and short-term profit centred that led to the financial crisis back in 2008. In the advent of the crisis, the three values based banks, Triodos Bank, BRAC Bank and Shore Bank got together seeking an alternative to the banking model which gave birth to Global Alliance for Banking on Values (GABV). As a result, 10 of the world’s banks founded GABV in 2009 with a commitment to boost the growth of sustainable banking and its impact worldwide. This entails members being bound by a shared commitment to find global solutions to international problems and to promote a positive, viable alternative to the current financial system and mainstream banking business models. GABV, headquartered in Amsterdam, Netherlands, is a network of banking leaders from around the world committed to advancing positive change in the banking sector. Collective goal of the alliance is to promote a banking system that is more transparent, supports economic, social and environmental sustainability, and is composed of a diverse range of banking institutions serving the real economy. Thus, it is a global movement of banking change makers operating and built on primarily by the principles of value based banking. Currently, the alliance comprises of 66 financial institutions and 12 strategic partners operating in countries across Asia, Africa, Australia, Latin America, North America and Europe. It is really wonderful to share that business decisions for GABV members start by identifying human needs to be met and then establish how to meet the need in a way that is sustainable from an environmental, social and economic standpoint, including sustainable profitability for the Bank. GABV members try to ensure that their finance is invested in ways that aspire, primarily, to improve quality of life and well being of the people and community. The banking institutions in the alliance are committed to responsible financing with a triple bottom-line approach of People, Planet and Prosperity at the heart of their business models. It would be pertinent to share the theme of the GABV summit in 2019 held in Vancouver Canada “Migrants, #Me Too, and Melting Icecaps......Redefining Banking for a Radically Different Future” which very well describes its essence. Values Based banks believe in channelising the bank’s resources to improve the quality of life for everyone on the planet, recognising that we are economically interdependent and responsible to current and future generations. GABV members ensure their resources benefit everyone and harm no one. While GABV members are concerned with the use of their financing to deliver good, depositors in some of the developed economies have shown their concerns as to where the funds deposited by them in the banks are being used. This, I think, will gradually be the concern of customers worldwide. GABV is represented in many countries in the Asia Pacific nations – Nepal, India, Bangladesh, Sri Lanka, Malaysia, Mongolia, Australia, Japan, Afghanistan, Tajikistan. Nepal is represented by NMB Bank and Muktinath Bikas Bank in the alliance. GABV’s presence in Nepal has been about a decade. In fact, Nepal hosted the GABV global conference back in 2017 which was inaugurated and addressed by then prime minister, and also addressed by the governor of Nepal Rastra Bank. The GABV members added greater specificity to their vision through the Kathmandu Pledge, “Values-based banking should foster a long-term positive social impact, as well as act as a local, regional and global leader to renew the whole banking system” during the meeting in Nepal. The Nepali banks in the alliance are playing active roles on the Values Based Movement and are very well connected to the global banking leaders.

Principles of Values Based Banking

• Triple bottom line approach of people planet and prosperity at the heart of the business model;
• Grounded in communities, serving the real economy and enabling new business models to meet the needs of both;
• Long-term relationships with clients and a direct understanding of their economic activities and the risks involved;
• Long-term, self-sustaining, and resilient to outside disruptions;
• Transparent and inclusive governance;

All of these principles must be embedded in the culture of the bank.

What does GABV mean when they say ‘real economy’?

GABV has defined the ‘real economy’ as that part of the economy concerned with producing goods and services, as opposed to the part that is focused on buying and selling on financial markets. It is in a way similar to the productive sector as is popularly known here in Nepal. Let us just imagine the kind of impact the national economy would have if majority of our resources are deployed in producing goods and services, ultimately contributing directly to the employment and national GDP. I would stress on an absolute need for the financial system to focus primarily on financing entrepreneurs working in the real economy that contribute to creating lasting solutions for people and the environment. Banks focused on real economy financing goods and services are closely connected to the customers and communities. Recent research shows that lending to the real economy delivers better financial returns. The values based banks, through their focus on the real economy, have demonstrated resiliency, and steady financial returns. As such, the values-based banking model provides a viable and needed alternative, adding strength to a diverse financial ecosystem. Eventually, values-based banking alternative could become the norm. I feel embracing values based banking system could be a very good remedy to another financial crisis as financial institutions would be banking on the real economy. The current financial system is too large, too complex and distancing from the real economy. If banks are focused on values-based banking, the odds of a crisis are substantially less. It comes from a strong focus on the real economy, which means you are financing real goods and services, and not speculations in the financial markets.

When a bank becomes a member of GABV, what are the tangible shifts for the consumer?

The customers will definitely have a different experience with the GABV members as the bank will be seeking to develop a long-term sustainable relationship with them. The customer will find the bank directly involved in understanding and analysing their economic activities and deeply concerned with the risk associated with dealing with them as well as the risks a customer may have in conducting their businesses. The bank will emphasise more on the environmental, social and governance considerations in the customer’s business activities. The GABV member bank will avoid providing financing support to the customer for any such initiative or project that can harm anyone. The bank will seek to assist customers to become more values-based themselves. The customers will also experience absolute transparency and fairness in the bank’s pricing for the products. Values-based banks maintain a high degree of inclusiveness in governance and reporting. In this context, inclusiveness is not limited to the bank’s shareholders and management but an active relationship with the bank’s extended stakeholder community including the customers themselves.

Member banks of GABV are committed to use finance to deliver sustainable economic, social and environmental development, with a focus on helping individuals fulfil their potential and build stronger communities. How do you rate their outcomes during the Covid crisis and what differentiated them at this time, globally and in Nepal?

Yes indeed, GABV members are deeply connected to the people and the communities they serve, and work for longer term relationships. GABV members have long understood that if banks are further away from their clients or community, it will be difficult to understand what is really happening. They strive to understand and thereby assume accountability for the risks they take and create for the people who use their products and services. Its focus on inclusion puts basic banking products in service of a greater number of people, rather than highly sophisticated products in the hands of a few. The alliance wants to ensure that banking is a healthy and productive system of society. Its members strongly believe that only by changing finance are we able to finance change. Increasingly, people are becoming aware of the interdependence of the real economy, social cohesion and our natural eco-system, something values-based bankers have long understood, and which is at the heart of the business model. Knowing that people want to support positive change in society, GABV can play a significant role in a healthy transformation of the banking sector, contribute to societal solutions, and become a reference point for others along the way. Being a global alliance member itself provides you a distinct advantage as the members of the alliance representing different parts of the globe share their best practices and learn from each others. Various cross interactions were made amongst the members of the GABV post Covid and shared within the alliance. For example, Nepali member banks shared its concern over the impact Covid has had on migrant workers and its possible shock in the Nepali economy. On the same issue the member bank from Malaysia, host country for Nepali migrant workers, could directly relate to it and possible solutions were discussed. Similarly, BRAC Bank, the member bank from Bangladesh, shared how they addressed their SME portfolio impacted by the crisis. All member banks could relate themselves to these sharing. The common feature of all the member banks’ sharing revealed their deeper understanding of their customers, their businesses and risks associated with their customer’s businesses.

I would stress on an absolute need for the financial system to focus primarily on financing entrepreneurs working in the real economy that contribute to creating lasting solutions for people and the environment. Banks focused on real economy financing goods and services are closely connected to the customers and communities.

The GABV members obviously are sympathetic to the difficulties and the issues their customers have had and have shown their willingness to provide possible reliefs and solutions rather than taking an indifferent approach. I clearly experienced the difference in approach of the banking system which is deeply concerned with the overall well-being of the economy, customers and communities they belong to with a longer term view. There was great learning in terms of digital interventions amongst the GABV community. The members of the alliance also found its enhanced relevance to the environmental focus. The supporting partners of the alliance including the DFIs also showed their willingness to provide support to the member banks and the communities in various ways.

You are also the Board Chairman of Nabil Bank. How do you view the bank’s performance in the past 37 years. Is Nabil Bank aligned to GABV?

Nabil Bank has a glorious history of its performance during the period. Nabil set a benchmark of the banking services in Nepal and has long been leading the sector. We are proud to have been the catalyst in the country to offer a different banking experience for customers in terms of its service and products. The bank has always strived to delight its customers with viable innovative solutions to their banking needs. The contribution of Nabil Bank has been significant in the country’s economy, and ground breaking in terms of developing a more professional and customer centric banking culture. Nabil Bank has long been contributing to positive change in terms of financing projects in the productive sector and fulfilling the growing demand for financial inclusion in the country. In the recent past, the bank has focused more on reaching out to customers of all stratums throughout the country as is evident with the deliberate expansion of its network including in the remote parts of the country. Concurrently, we have taken appropriate measures to reach out to customers even at the bottom of the pyramid. We have set up Sustainable Banking unit which serves as testament to our commitment to contribution towards sustainable economic, social and environmental development. We are gradually moving towards greater alignment to the principles of sustainable banking. We have accorded enhanced focus on capacity building initiatives, awareness campaigns within the bank’s stakeholders, and developing enabling policies and frameworks that stimulate the bank towards environmental, social, and governance (ESG) considerations in its activities. In line with this strategy, the bank has recently joined Partnership for Carbon Accounting Financials (PCAF) with intent to measure green house emissions out of its activities.

What in your opinion are the trade-offs between managing the Covid crisis and moving ahead with a sustainable finance agenda?

The Covid 19 crisis has glaringly awakened the system globally as well as in our country, clearly exhibiting the absolute need to strengthen the preparedness and resilience of each sector of the society, including the financial system. Sustainable finance consistently contributes to the real economy as such the extent of the resources we are able to channelise in the productive sector shall have significant bearing on supporting the recovery and growth, going forward. I would therefore emphasise that all stakeholders of the economy including the financial sector must focus, and flow enhanced level of resources in the real sector of the economy. How responsibly all stakeholders of the economy act in the next three to five years will certainly be crucial in terms of revival and growth. As such, sustainability should remain as an enduring policy and critical subject matter of the system during the Covid and post-Covid period. We must therefore have right policy, and how we move our steps now will determine the future.

I emphasise that all stakeholders of the economy including the financial sector must focus, and flow enhanced level of resources in the real sector of the economy. How responsibly all stakeholders of the economy act in the next three to five years will certainly be crucial in terms of revival and growth.

Managing the Covid crisis is directly interlinked with sustainable finance. Sustainable finance will in fact support stabilisation of the economy and growth – as such no tradeoffs. Sustainable finance in effect is complementary to the bank’s attempt to reach out to the unserved and underserved section of the society, chiefly from the informal sector, which has been affected greatly by the pandemic in terms of job loss or lack of opportunities impacted by the crisis. Apparently, Nabil Sustainable Banking has proven to be the timely initiative to hit the problem where it matters. Nabil Bank is committed to make a true difference on a long-term basis through this initiative in areas of capacity building through skill development, micro entrepreneurship, with a sustainable future and ecosystem primed to bring up local level microeconomics in rural Nepal.

What are some components of the banking culture that has had to be reshaped at Nabil due to the pandemic?

Being essential services, banks are required to function even during the difficult periods. Consequently, all banks including Nabil continued to provide their basic services despite the Covid 19 pandemic. I remember having opened the bank office on the next day of the earthquake back in 2015; same has been the case during the Covid 19. Many of the bank employees were required to come to the bank, as such were exposed to the risk of contracting Covid. In fact many of our staff got infected. Nabil Bank, therefore, accorded top priority to the health and safety of its staff and dealt with this issue with much more caution and provided various other support including sanitisation, PPEs, transport facilities and also made arrangements for Covid test for the staff. Work from home which, prior to the pandemic, used to be almost non-existent, has become a normal phenomenon, post Covid outbreak. We even started conducting our board meetings virtually. We are even thinking of structuring the work schedules to include work from home even after the pandemic, wherever possible. Over the period, not only work from home but also serve from home has become a way of life in Nabil. Working 9-5 from the office is no longer valid during the pandemic due to intermittent closures and openings. The staff have dealt with compassion to the customer needs which developed further trust amongst the customers in the bank. Post-Covid, the major shift in the bank’s working culture has been towards digitisation. In fact, the pandemic accelerated the process of digitsation in all sectors including banking in the country; and Nabil greatly focused on this area. Nabil, in fact, has been in the lead in introducing the QR Based touchless payment options, online applications for availing of various banking products and services including loans. The banking system waived charges for inter-bank electronic transfer of funds which gave rise to an increase in electronic transactions by many-fold. This also resulted in people being more accustomed to digital services, and also gave rise to acceptability of electronic payments among bank customers. The bank will seek to introduce and enhance digital interventions to more and more activities in the bank, going forward. Thus Covid has opened up possibilities of new ways of conducting its business which is being given top priority to bring about operating efficiencies and reduce cost of service in the bank. We have found staff being more compassionate to each other’s issues and care for each other.

How is Nabil preparing for the digital disruption that will gain larger momentum in the days to come?

Nabil has very well recognised that the digital solution is crucial to remain ahead in the business. The bank has always been ahead in introducing latest technologies and solutions to the delight of its customers. In order to further strengthen its leading position, the bank is in full swing in its digitisation process for enhancing its operational efficiency inside the bank and customer delight. Customer interfaces through Omni Channel based APIs is being designed to allow anytime anywhere banking.

So far banks have shown notable resilience in face of the Covid crisis. What are some of the significant changes you foresee in the banking sector in the near future? How has it affected profitability?

Yes, the banking system in the country including Nabil has shown a notable resilience in the face of various crises in the country, whether it be the long Maoist insurgency, the major earthquake, economic blockade, and now Covid. We bankers take pride on how we managed our institution in such odd situations. As also emphasised earlier, the process of digitisation and digital banking will accelerate and institutions that cannot keep pace with it will definitely lag behind. The bank’s system will be more and more technology driven with business analytics being in the forefront. Work from home and serve from home is a reality now and Covid has really showed us the way forward. This will undoubtedly change the way we hire our people. Going forward the banks will seriously consider realigning its verticals and organisation structures. There is clearly an opportunity for the banks to seriously reevaluate their expansion plans and infrastructure, and also look at its operating expense items in a different way. Risk diversification in assuming credit risks will take a sea change as Red, Amber, Green categorisation. The bank has done this for the first time which has provided lessons for us in risk diversification not only in segments but also geographically and in terms of granularity or non-granularity as the cases may be. Banking has taken a major hit in terms of its bottom-line due to refinance, directed rate discounts to borrowers, reducing spread due to directed lending ceilings which have given rise to cut-throat competition, even when spreads are going southwards. Our regulators and the government appear to have considered just on a single face of the coin. Management of the banks’ exposure that has been considerably impacted due Covid particularly after the forbearance allowed by the central bank is going to be the major issue the banking industry will face, going forward. All of us appear to have ignored this issue of greater significance. Approach of all stakeholders trying to squeeze the banking system at this point in time will prove damaging. It will be a testing period for all including the government.

How complementary are the economic policy measures by the regulatory bodies in helping stabilise the banking sector?

In line with the strategies of first survival, then revival; the central bank has been very proactive in ensuring a safe landing for the economy’s stakeholders during the ongoing pandemic; private sector being the most important one. By allowing deferment, rescheduling, restructuring along with creating an enabling environment aimed at tiding away the current economic downturn in highly affected and affected segments, Nepal Rastra Bank (NRB) has truly emerged as a very responsible regulator through many practical policy measures. Encouraging and pushing of digital channels is another major step by NRB. No doubt about the fact that NRB played a crucial role in stabilising the situation whether it be the major earthquake or blockades or now Covid. Our central bank has played a constructive and supportive role throughout.