Kathmandu, September 8. Bankers have complained that the capital market has discouraged investors in commercial banks. Bankers say that the share price of the banks has not been as much as it should have been.
Chairman of Nepal Investment Bank, Prithvi Bahadur Pandey, says that the share price of banks and financial companies is not seen with fair value in the NEPSE index. “The share price of development banks and finance companies, which are weaker than the commercial banks in terms of profit, net worth and all other financial indicators, is much higher than that of the commercial banks. How can that be justified?”, he questioned.
In fact, there is a big difference in the share price of commercial banks, while their profit margins are not so high. Bank shares, which seem to have a high share price based on many other indices, are also available in the market at low prices. Pandey describes the situation as “a planned game to discourage bank investors”.
After all, those who invest in banks are not even happy. Pandey says, “Banks’ return on equity (net profit compared to net worth) does not appear to be more than 10 to 12 percent. Our own Nepal Investment Bank has only 11.5 percent.” He is right when he says, “If we are to continue at this pace and sustain such profits, then the question arises as to who will invest in the bank.”
Pandey also complained that the general public still with concept that the bank promoters have made too much money even though they have made very low profits. Merchants are earning as much as they are investing. However, the bank promoters have been unhappy that their low earnings have not been discussed. But, even when they get a nominal return on their high-risk investment, they have been propagated in the sense of ‘bank robbery’.
Pandey says that the profit has been less due to the increase in the number of banks. No one wants to be the owner of a bank to earn a profit less than or equal to the interest earned on a fix deposit. He is of the view that if more than 10/12 commercial banks are kept, such return on equity will decrease further. However, the number of banks is not expected to decline immediately.
Despite rumors of a big merger in the market, the big banks do not seem to be merging. However, Pandey, who is in the final stages of merging with Himalayan Bank, argues that there is a trend of hindering banks from merging.
He says, “Many operators think that the bank should be under my leadership after the merger. However, the merger is not just a technical mix up. Emotionally, it is important to understand that two competing entities are one for the mutual interest.” Besides, the operators of big banks are in belief that the bank run by them is ‘the best, standard and strong’.
In same contexts, there is a saying that in course of discussion one bank’s manager humiliating another bank’s manager by saying, “Our bank and your bank’s share swap ratio should not exceed 100:20.” The tendency of such individual egos and unreasonable baseless valuations is also seen as an obstacle to serious merger talks.
He is of the view that even the foreign investors in Nepal’s banks are withdrawing their investments from here as the banks in Nepal have not given attractive returns. Apart from that, foreign investors have not been able to attract more investment in banks of Nepal. Pandey emphasized that everyone should think seriously about strengthening the banking sector. The foreigners who have invested in Nepal are leaving the country because they don’t see the future here for profit.
He urges all stakeholders to stop the collapse of Nepal’s banks, which now have more than 95 percent Nepalese investment, and to end the growing disillusionment among those who invest in them. As Nepal’s banking sector is currently providing employment to more than one lakh educated citizens, the government should also be vigilant for the sustainability of their employment.
Emphasizing on this, Pandey added, “The bank has stopped a large number of brain drains. They have become the basis of earning and living as they do abroad. Therefore, it is important for everyone to focus on strengthening the banks.”