ANNUAL REPORT 2018-19 1 ANNUAL REPORT 2018/19
FOCUS ON SUSTAINABLE GROWTH
www.machbank.com 2 MACHHAPUCHCHHRE BANK LIMITED ANNUAL REPORT 2018-19 3
Machhapuchchhre Bank only diference you create Limited is committed is “how you deliver”. MBL to become one of the does not only focus for most preferred bank in what product we ofer but Nepal. In today’s fnancial also how we deliver them market when most of the utilizing diferent means products and services of Customer Service ofered by fnancial Excellence. institution are same, the
FOCUS ON SUSTAINABLE GROWTH 4 MACHHAPUCHCHHRE BANK LIMITED CONTENTS
06 Bank’s Overview 10 Board of Director 12 Profle of Director 15 Chairman’s Statement 19 CEO’s Message 22 Management Team 25 Financial Highlights 27 Country’s Economic Conditions 28 Bank’s Performance 34 Human Resources 38 Corporate Governance 47 Director’s Report 62 Risk Management 78 Corporate Social Responsibility 82 Technologies 86 Products and Services 91 Remittance 92 Financial Statement 203 Branch Network 6 MACHHAPUCHCHHRE BANK LIMITED
BANK’S OVERVIEW
The Bank facilitates its customer needs Now with a paid up capital of by delivering the best of services in over 8.46 billion rupees, 159 combination with the latest state of the art technologies and prudent international Branch Ofces, 148 Branchless practices. The Bank is the pioneer in Banking Units, 5 Extension introducing the latest technology in the Counters and 196 ATMs spread banking industry in the country. all across the country, it is one of the full fedged national level commercial banks operating in Nepal. It takes pride in having its own buildings for its It is the frst bank to introduce centralized Head and Corporate Ofce in banking software, GLOBUS BANKING SYSTEM of Temenos NV, Switzerland. The Lazimpat, and Branch ofces in bank provides modern banking facilities Naya Bazar, Pokhara, Jomsom, such as Any Branch Banking, Internet Baglung and Damauli. Banking, Mobile Banking, Safe Deposit Locker facilities, Utility Bill payment (Telephone & Mobile), ATM (VISA Debit Cards ) to its valued customers. Besides these, the Bank is providing 365 Days Banking and Evening Counter services to the customers through many of its ofces.
The Bank has been promoted by highly renowned Non-Residential Nepalese, prominent business man and industrialists with a vision and dedication to provide the best fnancial products and services in the most efcient and professional manner. ANNUAL REPORT 2018-19 7
36% 1400+ 5 PROFIT GROWTH NO. OF EMPLOYEES EXTENSION COUNTERS
159 196 148 BRANCHES ACROSS ATM NETWORK BRANCHLESS THE COUNTRY BANKING UNITS
Vision Mission To become the bank of the To be one of the most preferred banks in Nepal, easily frst choice of the people recognized as the bank which satisfes and cares for its customers through quality service, innovative products, professionalism and wide branch network, ofering full array of fnancial services using modern technology and with good corporate governance practices.
Values With the objective INTEGRITY ACCESSIBILITY QUALITY SERVICE of supporting the Highest level of integrity/ Easy accessibility Through unmatched transition from rule absolute honesty in all through traditional as professionalism and based to attitude the business conduct and well as modern means of excellent customer care. based behavior, the dealings with customers, communication. Bank is functioning staf, regulators, and other STEWARDSHIP with the following stakeholders. VALUE CREATION OF RESOURCES fve core values: For shareholders, With the feeling customers, employees and of ownership and the nation. accountability. 8 MACHHAPUCHCHHRE BANK LIMITED ANNUAL REPORT 2018-19 9
BANK STRATEGIES for the Forthcoming Year
The fscal year 2018-19 summed up transactions in our ATMs and soon with an aim to ofer more personalized to be a satisfactory year for the Bank plans to launch Master Card as well and customized services and benefts with a year-on-year proft growth by as UPI Card based products in the uniquely tailored for our priority clients. 36%. However, in our continued march upcoming months. This will allow our towards the achievement of our vision customers to use our cards in and Further, the Bank plans to implement of becoming the “Bank of the frst outside Nepal in the Master Card an organization-wide restructuring and choice of the people”, We don’t plan network, which is one of the top three reengineering of business processes to settle without achievement so far. largest card networks in the world. in the upcoming year by automating Hence, we have planned strategies Likewise, UPI is also another large processes and optimizing resources. and actions for the forthcoming fscal network with card acceptance in 177 The aim is to garner operational year 2019-20, to enable us to ofer countries and issuance in 58 countries efciency, reduce redundancy and ultimate and unmatched quality and regions. loopholes and provide a seamless services to our valued and esteemed customer experience across all our customers. In addition to this, the Bank also channels. plans to introduce a few pioneering MBL has been currently providing technology-based products through Finally, continuing the services through its large and key tweaks in our existing line of legacy in the previous extensive network of 159 branches, digital banking products; And we shall 196 ATMs, 5 extensive counters continue to add new and improved years, the Bank shall and 148 Branchless Banking Units. features in our mobile and internet continue to play an active However, for a more accessible banking products, allowing simpler role as a responsible service network, we plan to open more interactions with our users. corporate citizen by than a dozen new branches and ATMs at several strategically viable locations Furthermore, the Bank also plans to developing CSR programs in the country in the upcoming year. massively expand its digital footprint in the upcoming fscal year In line with our network expansion all over Nepal by expanding our Point too. For this, we shall be strategy, we opened more than 80 of Sale (POS) network and Quick actively conducting and branches in the last three years, which Response (QR) merchant network, launching numerous CSR were targetted mainly at the expansion thereby playing our part towards the of our reach outside Kathmandu creation of a cashless economy. initiatives and activities valley. Hence, this year we shall be throughout the country to opening new branches primarily to Another key strategy for FY 2019- help the weaker and less cater to untapped regions inside the 20 is to continue to make signifcant privileged sections of the Kathmandu Valley. headway in the area of Customer Service Excellence. The Bank has community. One of our key strategies for the been continuously strengthening its upcoming year as per our fve year “Customer Service Excellency Unit” strategic business plan is to develop and also plans to launch a full-fedged our technology-based product line customer centric “Call Centre”, which and develop it as a key thrust area. will provide a one-step solution for To enable this, the Bank has already all customer queries and grievances. enabled Master Card and UPI-Unifed Moreover, the Bank has also recently Payment Interface based card established its “Priority Banking Unit” 10 MACHHAPUCHCHHRE BANK LIMITED
BOARDS OF DIRECTORS
SITTING FROM RIGHT TO LEFT
Dr. Birendra Prasad Mahato, Chairman Mr. Roshan KC, Director
STANDING FROM RIGHT TO LEFT
Mr. Hari Bhakta Sigdel, Director Mr. Gopi Krishna Neupane, Director Mr. Jaya Mukunda Khanal, Director Mr. Omesh Lal Shrestha, Director Mr. Bishow Prakash Gautam, Director ANNUAL REPORT 2018-19 11 12 MACHHAPUCHCHHRE BANK LIMITED
PROFILE OF DIRECTORS
Dr. Birendra Prasad Mahato Mr. Roshan KC Mr. Gopi Krishna Neupane Chairman Director Director
Dr. Birendra Prasad Mr. Roshan KC served Mr. Gopi Krishna Neupane Mahato, Chairman, as the Chairman of is associated with Machhapuchchhre Machhapuchchhre Bank Machhapuchchhre Bank Bank Limited, holds the Limited from April 27, 2017 as a director since January prestigious academic honor till January 4, 2019. Mr. KC 2011. He was also involved PhD in Economics from holds long term experience in Audit Committee Belarus State Economics in the feld of manufacturing and Risk Management University. Other than and construction. He is Committee of the Bank. Machhapuchchhre Bank, also associated Sikles Mr. Neupane holds Master he is associated with Ram Hydropower Pvt. Ltd., Task Degree in Management Janaki Investment and Hydropower Pct. Ltd., from Tribhuwan University petroleum Suppliers Pvt. Bhagwati Hydropower and also a LLB Degree Ltd. and Sintez Investment Development Company Pvt. from Nepal Law Campus. Company Pvt. Ltd. as a Ltd., Gandaki Hydropower He has a long term Board member. Dr. Mahato Development Company Pvt. professional exposure in the has abundant experience Ltd. and KC Construction feld of Business, Banking, in the feld of economics Pvt. Ltd. Mr. KC holds a Law, Audit, Taxation etc. and fnance, he has served Master Degree in Business He is associated with as Economic and Financial Administration and also B.E Audit frm-G.K. Neupane Consular to Amkodor in Civil Engineering. and Associate, Metro law heavy equipment Factory frm, Hillside College of in Belarus and Delto trade Engineering and National Multinational Company Business Initiatives. He in Cyprus. Dr. Mahato is was formerly associated the director of Fulkumari with Nada Automobiles Mahato Memorial trust and Association of Private and Fulkumari Memorial Health Institute. Hospital. He is also the former Hon’ble member of the Constituent Assembly of Nepal. ANNUAL REPORT 2018-19 13
Mr. Jaya Mukunda Khanal Mr. Omesh Lal Shrestha Mr. Bishow Prakash Gautam Mr. Hari Bhakta Sigdel Independent Director Public Director Director Public Director
Mr. Jaya Mukunda Khanal Mr. Omesh Lal Shrestha Mr. Bishwo Prakash Gautam Mr. Haribhakta Sigdel holds Master Degree in holds a Master degree holds a bachelor degree in holds a Master Degree Business Administration in information system Management from CSJM in Public Administration from Mohanlal Sukhadia from New York University university, India, and is a from Tribhuvan University. University, India and also and a Bachelor’s Degree successful businessman. He is the former Deputy Post Graduate Diploma in Computer Science He is the Director of KC Superintendent of Police in Strategic Defense and and Engineering Constructions Pvt. Ltd. and (DSP) and has served the Studies Course from from Visveswaraya United Idi Mardi and Rb police force for over 29 National Defense University, Technological University, Hydro Power Pvt. Ltd. He years. During his time in China. He has served the India. He is the CEO and was the former Director of police he was awarded Government of Nepal for Managing Director of CAS Pokhara Bachat Tatha Rin with the prestigious ‘Prabal almost 30 years in diferent Group of Companies. He Sahakari Sanstha Limited Gorkha Dakshin Bahu departments such as has been associated with and KC Builders and Chautha’ and various Ministry of Defense, Ministry Machhapuchchhre Bank Developers Pvt. Ltd. other awards. Besides the of Industry, Ministry of since 2017. He was also police, he holds managerial Agricultural Development, formerly associated with experience from Vastok Ofce of the Prime Minister DBRS Inc., and Linonia International Pvt. Ltd., Rubin and Council of Ministers, Capital LLC, New York Housing and Investment Ofce of the Nepal Trust, as Financial Analyst and Pvt. Ltd., and SIntez Law and Order Division. Quantitative Analyst. Investment Company Pvt. Currently, he is serving as Ltd. the Executive Director for Center for Environmental and Agricultural Policy Research, Extension and Development (CEAPRED). 14 MACHHAPUCHCHHRE BANK LIMITED ANNUAL REPORT 2018-19 15
CHAIRMAN’S STATEMENT SUSTAINABLE GROWTH
As we are progressing into a smarter world that embraces smart product oferings and services, we are incorporating cutting-edge technologies to standardize our service to meet our customer’s demand. 16 MACHHAPUCHCHHRE BANK LIMITED
CHAIRMAN’S STATEMENT
We have always to diversify our business as Serving the Nation acknowledged our legacy result of which we established To Support Government customers whilst catering to MBL Capital Limited (MCL), initiative of taking banking the millennials. Our prudent which is a full subsidiary of service to each local unit banking practice with sound Machhapuchchhre Bank after the new Constitution corporate governance have Limited. defned 7 Provinces and 753 leveraged our eforts to make local units, branch expansion us a sustainable business in Business Reengineering and strategy of Bank has followed the market. Digital Transformation the suit. Where opening up Business process full-fedged branches were Our Strategies for the reengineering embracing not feasible, small physical forthcoming year digital transformation helps business correspondent touch As envisioned by the Bank’s us improve performance, points (commonly referred as fve-year strategic plan, we increase reach and agility, Branchless Banking, the BLB) have expanded our network improve customer service, were launched massively in extensively in last two robust internal control remote areas of country. In years making the Bank 6th and identify new revenue addition to this, ATM facility largest private commercial opportunity. Our endeavor is playing signifcant role in Bank of Nepal in terms of to foray into rich world of AI promoting brand visibility branch network. Provincial & ML begun by developing as well at various strategic Ofces have been setup risk model to facilitate business locations of urban in each province of the Credit Card approval and semi urban. country under leadership process is a stepping-stone. of Province Manager to Branch expansion across In order to support fnancial have better supervision domestic market based on inclusion endeavor launched over people & process, reorganization by adopting by the Government and improve customer service digital transformation to Regulator to reach the still- and enhance customer achieve operational efciency unbanked population, we perception keeping business and improve customer service have adopted State of Art objective into consideration. through service diferentiation technology to enable modern We also have taken step has paid of us substantially. banking services to local ANNUAL REPORT 2018-19 17
people. Real Time account Responsibility policy to to appreciate cooperation form opening and uninterrupted contribute to the community’s Staf Union for helping Bank secured (2FA: Biometric & well-being. Since we to operate seamlessly. Finally, Card) banking service using are gearing up for digital it is the collective eforts from Tab device from physical transformation, a paper-less all stafs of the Bank whose business correspondent touch working environment is now untiring efort and dedication points located in remote part something we can envision in that have helped us grow and of our complex geographical near future. prosper. Last but not the least, terrain is something we take as we embark on the 20thyear pride on. Appreciations of operation, I would like to I would like to extend my extend my sincere gratitude Governance appreciation towards my towards all the shareholders, Strengthening and fellow Board members for stakeholders, well-wishers, streamlining Governance, Risk contributing together towards regulatory authorities and & Compliance structure by the strategic initiatives of the governmental bodies, for according highest importance Bank. I would like to appreciate your continued support and has helped us in trust and management team for cooperation. confdence of Regulator and steering this bank to a higher General Public to greater grounds whilst maintaining DR. BIRENDRA PD. MAHATO extent. We can proudly say professionalism and integrity. CHAIRMAN that we are among the top The Management team commercial Banks of Nepal has also shown unstinted with good governance and commitment in performing prudent banking practices. their duties, for which I am grateful. Sustainability The Bank is always committed Our customers are the towards sustainability. backbone of our foundation, The Bank has embedded without which we would not Sustainable Development have endured for such a long Goals in its Corporate Social span of time. I would also like 18 MACHHAPUCHCHHRE BANK LIMITED ANNUAL REPORT 2018-19 19
CEO’S MESSAGE ARTICLE HEADING
One of our key priorities in the review year was to develop our digital capabilities and to strive hard to be ahead of the curve in the industry. 20 MACHHAPUCHCHHRE BANK LIMITED
CEO’S MESSAGE
FY 2018-19 has been one of the most billion (a 20% growth on a year-on-year non performing loan (NPL) ratios in the rewarding yet eventful years for the basis). With a strong Current Account industry (0.38%, a 16% decline on a year- entire banking industry as well as MBL. Savings Account (CASA) franchise on-year basis). Despite major regulatory changes of 34%, we expanded our deposit that directly impacted the operating portfolio by 20% over the previous year, The FY 2018-19 marked as a proftability of all commercial banks, surpassing the 85 billion mark and watershed year for the Bank where we the Bank registered a 24% growth in its reaching Rs. 85.19 billion. Our loan book implemented our network expansion balance sheet size and a 36% growth also observed a 21% growth (Rs. 13.3 strategy in line with our fve years’ in its net proftability on a year-on-year billion) standing at Rs. 77.5 billion by the Strategic Business Plan. We opened basis. The industry witnessed some key year end. Thus, we are proudly serving 45 new branches throughout the regulatory reforms by the Central Bank our 850 thousand + customers from our country extending our reach to the in the form of upright downscaling of 159 branches throughout the nation. most remote parts of the country base rate by 0.75% and reduction of such as Apihimal, Vyas, (Darchula), interest spread rate by 0.5%, that were In the review year, our earnings per Sunkoshi (Okhaldhunga), etc. The Bank introduced in the middle of the FY with share observed a 33% growth while our further opened 13 new branches this an aim to stabilize prices in the industry; market value per share ascended by year. The Bank now has one of the However, these changes directly 26% on a year-on-year basis. Likewise, largest networks among the private reduced the proftability of commercial our book net worth as well as book commercial banks with 159 branches, 7 banks and led to interim strategy value per share surged by 8% over the provincial ofces, 196 ATMs, 5 extension implementation by commercial banks. previous fscal year. counters and 148 BLB units. Thus, we proudly boast our presence in all 7 On top of that, the Nepalese industry On our risk management framework provinces, 55 districts and 118 local has undergone a challenging period and corporate governance front, the bodies across Nepal. in the last couple of years, especially Bank has been widely recognized and with an elongated liquidity pressure acclaimed as one of the strongest in One of our key priorities in the review that continued in FY 2018-19 as well the industry, especially, as one of the year was to develop our digital (especially tightening in the frst two top private commercial banks having capabilities and to strive hard to be quarters). Nevertheless, the strong the lowest Capital Charge/ Supervisory ahead of the curve in the industry. balance sheet growth management Adjustments by NRB. Similarly, the With the country rapidly bolstering coupled with our pro-active strategies Bank continues to cement its place towards “Digital Nepal” and towards helped to tide over the liquidity as a consistent player in its asset transitioning into a cashless economy, pressures and we managed to achieve quality management and recovery the Bank undertook a number of promising growths across all fnancial system as well by implementing more technology initiatives including the parameters. We achieved a robust efcient and accelerated asset quality launch of “Maya”, an AI-based Chatbot growth in both our deposit and loan management cycle than the previous to provide 24×7 online digital assistant books; our portfolio grew by Rs. 27.4 periods. Thus, the Bank yet again service to our customers, “Remitap” billion from Rs. 135.3 billion to Rs. 162.7 managed to push one of the lowest mobile application for sending money ANNUAL REPORT 2018-19 21
digitally to Nepal from India, “Insta The Bank became a fully credit rated Therefore, I derive great pleasure in Pay” service to purchase various bank earning a prestigious A- (A minus) reporting that as the Bank steps in products and services via MBL credit rating from ICRA Nepal for both its to its 20th year, the Bank has built a cards on installment basis and two overall bank rating as well as the 10- vibrant and successful brand, catering major upgrades of our mobile banking year debenture of the Bank. The Bank to the growing fnancial needs of the application (MBL Mobile Money (M3) also became a ISO 9001:2015 certifed society, through its team of 1380+ Plus) adding new and nifty features bank in recognition of its Quality employees, highly diverse digital and such as credit card details in the app Management System, which is the true physical channels, and a wide gamut of for the frst time among Neps member testimony of our mission statement. The customer centric products and services. banks, QR code scanning feature and prestigious international certifcation has many more. As a result, the digital been provided by United Registrar of I would like to take this opportunity channels of the Bank such as: internet Systems (UKAS-UK). to thank all our internal and external banking, mobile banking and card shareholders as well as our regulatory banking increased by around 40% in The Bank has always played an active authorities for your constant support the review year over the previous fscal role in contributing to nation building. and guidance. I would also like to thank year. Thus, MBL aims to be the fore- The Bank’s Infrastructure and Corporate our Chairman and the members of the front runner in the digital space. Business focuses on lending to key board for your continued guidance, infrastructure development projects, expertise, patronage and support. In addition to this, the Bank also hydroelectricity power projects and became one of the frst few banks construction projects. The Bank also With your continued support, I am to complete an all-exhaustive and continues to contribute a signifcant confdent that we can accomplish all full-fedged Information System (IS) portion of its assets to the priority our goals and build a trusted, fnancially Audit in FY 2018-19, which helped us sector lending thereby supporting strong and compliant bank in the to further strengthen the IT Framework the economy. Moreover, the Bank upcoming years as well. and structure of the Bank. The Bank continues to develop MSB, SME and also undertook major steps to improve retail loan assets as the chief growth With best wishes! our security system and processes engine for the Bank diversifying our including 3d secure cards enabling portfolio, deepening relationships SUMAN SHARMA more secure online transactions and building a better and higher rated CHIEF EXECUTIVE OFFICER for our card users during online portfolio. shopping sessions, SIEM and WAF implementation strengthening our On the other hand, we continued to information security, implementation of share our success with the community ITOPs in compliance with Information at large by playing an active and Technology Management Standards, responsive role as a responsible Centralized system monitoring system, corporate citizen through our structured etc. Corporate Social Responsibility (CSR) Initiatives. 22 MACHHAPUCHCHHRE BANK LIMITED
MANAGEMENT TEAM
SITTING FROM RIGHT TO LEFT
Mr. Suman Sharma, CEO Mr. Santosh Koirala, DCEO ANNUAL REPORT 2018-19 23
STANDING FROM RIGHT TO LEFT
Mr. Narayan Prakash Bhuju, AGM (Technology) Mr. Sarju Kumar Thapa, AGM (Business) Mr. Bishwambhar Neupane, AGM (Operations) 24 MACHHAPUCHCHHRE BANK LIMITED
PERFORMANCE
REVIEW Net Interest Income of the bank has grown by 30% 30% in the FY 2018-19. NPR 355 Crore
Deposit of the bank 26% has grown by 26% in the OPERATING PROFIT (in NPR Crore) FY 2018-19. 240
178 181
126 Net Proft of the bank has grown by 36% 75 36% in the FY 2018-19. 33% NPR 170 Crore 14/15 15/16 16/17 17/18 18/19
TOTAL LOANS & ADVANCES NPR 78 Billion
DEPOSIT AND NET PROFIT/LOSS (in NPR Crore) LOANS & ADVANCES (in NPR Billion)
35 14/15 44 170 44 15/16 52 130 125 52 90 16/17 59
62 64 17/18 73
78 36% 18/19 92 14/15 15/16 16/17 17/18 18/19 Loans & Advances Deposits ANNUAL REPORT 2018-19 25
FINANCIAL HIGHLIGHTS
Rs. 1.69b Rs. 20cr Net Proft Invested in Machhapuchchhre Rs. 3.54b Capital Limited Net Interest Income
For the fnancial year 2018-19, On the other hand, personnel cost Total Balance sheet size of the bank bank’s Net Interest Income (NII) has has also increased by 41% in current has also grown by 20.45 Billion. increased by 29.56% as compared year owing to increased number of The bank has added 24.85 crore in to previous year. NII stood at 3.54 employees because of 45 number Property, Plant and Equipment of Billion. Similarly, there is growth of new branches. Personnel cost the bank including Intangibles. As at of around 63% in Net Fees and was 1.23 Billion compared to 87.46 16 July 2019, fxed asset of the bank Commission Income. Net Fees and Billion of previous year. In FY stood at 1.17 Billion. Return on total Commission Income was 72.05 Cr 2018-19, 242 number of stafs were asset of the bank stood at 1.61%. as compared to 43.95 Cr of previous recruited. Staf training cost was 2.67 year. crore. Other operating cost of the Bank has also invested 20 Cr in bank has also increased by around FY 2018-19 in Machhapuchchhre Another, impeccable achievement 73% because of increased no. of Capital Limited which is a wholly of bank is in Net Trading Income network. owned subsidiary of the bank. witnessing 81.85% growth as compared to previous year. Overall Net Proft of the bank was 1.69 Net Operating income of the bank Billion compared to 1.24 Billion of has grown by 40% in this FY 2018-19. previous year, thereby achieving a growth of 36%. 26 MACHHAPUCHCHHRE BANK LIMITED
INTERNATIONAL SCENARIO
Global growth has continued to soften However, South Asia The balance of Payment was highly this year due to a further escalation of growth remains robust defcit throughout the year and budget trade tensions between US and China; surplus was higher than previous renewed fnancial turmoil in emerging despite headwinds from years. The continued higher level markets and sharper-than-expected weakening global trade of credit relative to deposit growth slowdowns in major economies. Amid and manufacturing. limited the availability of loanable low global infation and a deterioration Regional growth is funds. Despite of having tight liquidity of the growth outlook, the prospect market, Bank’s ALCO have been that the U.S. Federal Reserve and expected to expand 6.9% successful in regular monitoring of the other major central banks will tighten in 2019, underpinned by market and taking strategic decisions monetary policy in the near term has strong domestic demand. on time. All Required key indicators are faded, leading to an easing in global Private consumption and intact with the regulatory requirement fnancing conditions. throughout the year. investment remained
A further escalation of trade tensions robust in much of the involving major economies could region. World Bank has lead to a sharp increase in trade estimated annual growth of barriers and weigh on confdence and Nepal at 7.1% in 2019. investment. An increase in uncertainty could also be related to a heightened Looking at Nepalese market, we had possibility of a disorderly exit of the experienced liquidity crunch in the FY United Kingdom from the European 2018/19 most of the time of the year. Union (EU). ANNUAL REPORT 2018-19 27
COUNTRY’S ECONOMIC CONDITION
billion in mid-July 2019 from Rs. 1435.14 Remittance ECONOMIC billion a year ago. Central Bank’s The remittance infow in the review OUTLOOK OF policy to encourage the debenture period has increase to 0.9 percent FY 2018-19 has resulted in 14 commercial banks against an increase of 30.2 percent in obtaining approval to issue debenture the same period of previous year. The worth NPR.43.98 billion which lower remittances could afect the GDP & Balance of Payment (BOP) strengthens the capital market. In mid liquidity of fnancial system. The growth of Nepal’s Gross Domestic july weighted average interest rate of Product (GDP) at basic price was 91 days T Bill stood at 4.97% (PY 3.74%) Financial sector 6.8% in FY 2018-19, which was 6.3% in and weighted average interbank rate The commercial banks now have previous year. Government of Nepal of commercial bank was 4.52%. wider reach of network covering 745 (GON) has envisioned economic local levels out of 753 local levels growth of 8.5% in FY 2019-20. Growth Nepalese currency vis-à-vis US dollar aiding in the government’s vision to of GDP in the agriculture sector is depreciated by 0.02 percent in FY have one account per citizen. estimated to be 5% in FY 2018-19 2018-19. The buying rate for one US compared to 2.8% in FY 2017-18 and dollar stood at Rs.109.36 in mid July BOP Position in the services sector to be 7.3% in FY 2019 compared to Rs.109.34 a year Balance of Payments (BOP) remained 2018-19 compared to 7.2% in FY 2017- ago. at a surplus of Rs.26.65 billion in the 18. Industrial sector growth is expected six month against a defcit of Rs.63.68 to be 8.1% in FY 2018-19 compared to billion in the same period of the 9.6% in FY 2017-18. Economic Outlook for 6 previous year. The promotion of tourism is taking a Deposit Mobilization good pace with the upcoming ‘Visit month ended 14 Deposits at Banks and Financial Nepal 2020’ program. The expected January 2020 Institutions (BFIs) increased 6.2 surge in tourist arrivals shall result in percent in the six month compared growth of transportation, hotel and Infation to an increase of 7.7 percent in the restaurant services. The infation remained 6.82 percent corresponding period of the previous on year on year basis and 6.41 percent year. Balance of Payments (BOP) remained on average during the frst six months at defcit of Rs.90.83 billion. of the review year. Food price infation Credit Disbursement stood at 10.21 percent while nonfood Credit to the private sector from BFIs Infation and interest rates price infation stood at 4.25 percent in increased 8.6 percent in the six month Average consumer price infation in the review month. Within the food and compared to a growth of 12.7 percent the eleven month of FY 2018-19 was beverage group, prices of vegetables, in the corresponding period of the 4.5% compared to 4.2% a year ago. spices, pulses and legumes and previous year. fruits sub-groups rose signifcantly Financial and capital markets in the review month. Likewise, within Stock market remained stable in the the non-food and service group, review year. The NEPSE index stood the prices of education, clothes at 1259 in mid-July 2019 compared and footwear, and furnishing and to 1212 a year ago. Similarly, market household equipment subgroups rose capitalization increased to Rs.1567.50 moderately in the review month. 28 MACHHAPUCHCHHRE BANK LIMITED BANK’S PERFORMANCE
HORIZONTAL ANALYSIS OF BALANCE SHEET
FY 2018-19 FY 2017-18 FY 2016-17
Assets Cash and cash equivalent 172% 43% 100% Due from Nepal Rastra Bank 59% 130% 100% Placement with Bank and Financial Institutions 2010% 1924% 100% Derivative fnancial instruments 313% 0% 100% Other trading assets 447% 314% 100% Loan and advances to B/FIs 144% 106% 100% Loans and advances to customers 150% 125% 100% Investment securities 214% 160% 100% Current tax assets 81% 77% 100% Investment in susidiaries 0% 0% 100% Investment in associates 0% 0% 100% Investment property 315% 100% 100% Property and equipment 161% 126% 100% Goodwill and Intangible assets 112% 104% 100% Deferred tax assets 0% 0% 100% Other assets 240% 120% 100% Total Assets 152% 123% 100%
FY 2018-19 FY 2017-18 FY 2016-17
Liabilities Due to Bank and Financial Instituions 489% 102% 100% Due to Nepal Rastra Bank 635% 397% 100% Derivative fnancial instruments 0% 0% 100% Deposits from customers 149% 124% 100% Borrowing 0% 0% 100% Current Tax Liabilities 0% 0% 100% Provisions 0% 89% 100% Deferred tax liabilities 0% 56% 100% Other liabilities 130% 118% 100% Debt securities issued 0% 0% 100% Subordinated Liabilities 0% 0% 100% Total liabilities 157% 124% 100%
Equity Share capital 114% 114% 100% Share premium 0% 0% 100% Retained earnings 105% 65% 100% Reserves 200% 158% 100% Total equity attributable to equity holders 122% 112% 100% Non-controlling interest Total equity 122% 112% 100% Total liabilities and equity 152% 123% 100% ANNUAL REPORT 2018-19 29
HORIZONTAL ANALYSIS OF PROFIT OR LOSS (PAST 3 YEARS)
PARTICULARS FY 2018-19 FY 2017-18 FY 2016-17
Interest income 198% 151% 100% Interest expense 237% 180% 100% Net interest income 150% 116% 100%
Fee and commission income 175% 109% 100% Fee and commission expense 151% 111% 100% Net fee and commission income 178% 109% 100% Net interest, fee and commission income 154% 115% 100%
Net trading income 231% 127% 100% Other operating income 29% 9% 100% Total operating income 154% 112% 100%
Impairment charge/(reversal) for loans and other losses 115% 150% 100% Net operating income 155% 111% 100%
Operating expense Personnel expenses 177% 126% 100% Other operating expenses 215% 125% 100% Depreciation & Amortisation 151% 116% 100% Operating Proft 135% 102% 100%
Non operating income 680% 17% 100% Non operating expense 0% 0% 100% Proft before income tax 135% 101% 100%
Income tax expense 136% 104% 100% Current Tax 143% 105% 100% Deferred Tax -561% 25% 100% Proft for the year 135% 99% 100%
Earnings per share Basic earnings per share 91% 68% 100% Diluted earnings per share 91% 68% 100% 30 MACHHAPUCHCHHRE BANK LIMITED
VERTICAL ANALYSIS OF BALANCE SHEET
FY 2018-19 FY 2017-18 FY 2016-17
Assets Cash and cash equivalent 9% 3% 8% Due from Nepal Rastra Bank 3% 8% 8% Placement with Bank and Financial Institutions 1% 2% 0.10% Derivative fnancial instruments 0.07% - 0.03% Other trading assets 0.34% 0.30% 0.12% Loan and advances to B/FIs 2% 2% 2% Loans and advances to customers 71% 74% 72% Investment securities 10% 9% 7% Current tax assets 0.20% 0.24% 0.38% Investment in susidiaries 0.19% - - Investment in associates 0.00% - - Investment property 0.07% 0.03% 0.04% Property and equipment 1% 1% 1% Goodwill and Intangible assets 0.05% 0.05% 0.06% Deferred tax assets 0.02% - - Other assets 1% 1% 1% Total Assets 100% 100% 100%
FY 2018-19 FY 2017-18 FY 2016-17
Liabilities Due to Bank and Financial Instituions 6% 2% 2% Due to Nepal Rastra Bank 1% 1% 0.23% Derivative fnancial instruments - 0.0001% - Deposits from customers 81% 84% 83% Borrowing - - - Current Tax Liabilities - - - Provisions - 0% 0% Deferred tax liabilities - 0.02% 0.04% Other liabilities 1% 2% 2% Debt securities issued - - - Subordinated Liabilities - - - Total liabilities 89% 88% 87%
Equity - - Share capital 8% 10% 10% Share premium 0.03% 0.04% - Retained earnings 1% 1% 2% Reserves 2% 2% 1% Total equity attributable to equity holders 11% 12% 13% Non-controlling interest Total equity 11% 12% 13% Total liabilities and equity 100% 100% 100% ANNUAL REPORT 2018-19 31
VERTICAL ANALYSIS OF PROFIT AND LOSS
PARTICULARS FY 2018-19 FY 2017-18 FY 2016-17
Interest income 90% 92% 88% Interest expense 59% 60% 48% Net interest income 31% 32% 40%
Fee and commission income 7% 6% 8% Fee and commission expense 1% 1% 1% Net fee and commission income 6% 5% 7% Net interest, fee and commission income 38% 38% 47%
Net trading income 3% 2% 2% Other operating income 0.25% 0.11% 2% Total operating income 41% 40% 51% Impairment charge/(reversal) for loans and other losses 1% 2% 2% Net operating income 40% 38% 50%
Operating expense Personnel expenses 11% 10% 12% Other operating expenses 6% 5% 6% Depreciation & Amortisation 1% 1% 1% Operating Proft 21% 21% 30%
Non operating income 1% 0.04% 0% Non operating expense 1% 0.02% 0% Proft before income tax 21% 21% 31%
Income tax expense 6% 7% 9% Current Tax 7% 7% 9% Deferred Tax -0.27% 0.02% 0% Proft for the year 15% 15% 22% 32 MACHHAPUCHCHHRE BANK LIMITED
VALUE ADDED STATEMENT Value added statement is the wealth created by the MBL. Such statement shows detailed account of value creation towards employee, government as tax and towards the shareholder of the bank. Fig In Miilion
2018/19 AMOUNT %
Total Operating Income 11,271 Total Operating Expenses 7,421 Value Added from Core Banking Services 3,850 Other Incomes 28 Non-Operating Income 122 Non-Operating Expenses 95 Impairment Charge 117 Total Value Added by the Bank 3,788 100% Number of Employees 1,193 Value Added per Employee 3 Distribution of Value applied To Employees(As salary and allowances) 1,230 32% Towards Government(Corporate tax) 730 19% To Shareholders(Cash and Stock) 1,289 34% Cash Dividend 886 Bonus Share 403 For Expansion and Replacement of Assets 130 3% As retained Income 408 11% Total Value Applied 3,788 100% ANNUAL REPORT 2018-19 33
21,267 21,267 19% 14%
8,056 8,056
34% 33% 2018 2019
n Employees n Shareholders n Market Value of Shares Outstanding n Governments n Retained in Business n Book Value of Shares Outstanding
MARKET VALUE ADDED (MVA) STATEMENT Market value added statement is a refection of the Company’s performance evaluated by the market through the equity of the company. It is a measurement of external performance. It is a measure that shows how the market has judged the company’s performance in terms of market value of shares compared to book value of shares. It is the diference between the market value of equity and the book value of equity invested in the company.
MARKET VALUE ADDED STATEMENT FOR THE YEAR END 2019 2018 Market Value of Shares Outstanding 21,267 21,267 Book Value of Shares Outstanding 8,056 8,056 Market Value Added 13,211 13,211
ECONOMIC VALUE ADDED Economic Value-Added is the surplus generated by an entity after meeting an equitable charge towards providers of capital. It is the post-tax return on capital employed (adjusted for the tax shield on debt) less the cost of capital employed. Companies which earn higher returns than cost of capital create value, and companies which earn lower returns than cost of capital are deemed harmful for shareholder value.
The aim of EVA is to provide management with a measure of their success in increasing shareholder’s wealth: a better measure than proft of how much the company had made for shareholders. EVA has been calculated by the following formula:
Economic Value Added (EVA) Statement [EVA=(NPAT-Cost of Average Equity)]
FOR THE YEAR ENDED ON 2019 Shareholders Fund at the Year End 11,237 Accumulated Loan Loss Provision 969 Average Shareholders Equity 10,797 Dividend 16% Market Value Per Share 264
Net Operating Proft After Taxes before LLP 1,814 Cost of Equity 1,289 Economic Value Added 525 34 MACHHAPUCHCHHRE BANK LIMITED
HUMAN RESOURCES
Human resources Department is the vital spark of our bank, because our job is to ensure that the business gets the most out of its employees. We are constantly working to improve the quality of work life by creating and implementing various programs and policies. We believe that efciently run human resources department can provide any organization with structure and the ability to meet business needs through managing company’s most valuable resources that is our own people. Thus, the bank has continued to lay great emphasis on human resources development, to make its employees attain global standards in productivity, thereby maximizing value creation for its stakeholders. We are proud of our employees who are the foundation of the Bank who operates and performs consistently for the growth of the Bank.
Human resources department plays an teams to bring diverse perspectives, make essential role in developing a company’s better decisions and manage risk. People strategy as well as handling the employee- with diferent backgrounds, education, skills centered activities of an organization. Human and experiences can create sustainable Resources Department of the Bank monitors values across the Bank. We are committed and ensures that Bank’s HR policies are to gender diversity and have been providing interpreted consistently across the Bank. equal employment opportunity to aspiring The HRM function is guided by its long- candidates who are fairly recruited through term vision of working in partnership to vacancies and internal job watch. create an environment where employees can thrive and are enabled to deliver GENDER DIVERSITY sustainable organizational performance. We believe in diversity. It drives our growth MBL’s integrated Vision and Values by helping us engage with our consumers framework advocates principles of ethical while making sure we can attract and retain work culture, open communication, objective talented people and unlock their potential. career development and transparency We believe that the inclusive workforce can in remuneration and pay performance boost fnancial performance, reputation, correlation support HR practices employees innovation and staf motivation – and bring within the Bank. us closer to our customers. We believe in on equal opportunity and we recruit, employ HR DETAILS and promote employees on the sole basis of The Total number of employees of the bank the qualifcations and abilities needed for the has reached to 1,195 in the year as compared work to be performed. to 953 last years, with the increment of 242 employees in various positions. Total stafs at the end of FY 2018-19 constituted 59% male and 41% female staf. Diversity is a key enabler for long-term success which enables ANNUAL REPORT 2018-19 35
Composition of male and female employees MALE FEMALE MIX 2018/19 FY 2018/19
SHAREHOLDER MALE FEMALE TOTAL Male 41 Managerial 62 11 73 Female Ofcer 246 122 368 Assistant 331 337 668 Support 67 19 86 59 Total 706 489 1195
Attrition Rate 2018/19 8.78% Attrition Rate 2017/18 11% Summary of Employees Attending Training F.Y 2018/19
Age wise composition 2018/19 Total Trainings on FY 2075/76
AGE NO OF EMPLOYEES PARTICULARS STAFF NUMBER NO. OF TRAINING 18-25 199 1. External Training 201 109 26-34 622 2. In House Training 1994 75 35-44 306 3. International Training 33 24 45-54 62 Total 2228 208 55-64 6
LEARNING AND During the review period, stafs were DEVELOPMENT (L&D) TRAINING DETAILS IN 2018/19 beneftted with internal and external trainings by the Machhapuchchhre The Bank has always considered International Training 18% its staf as an essential asset of In House Training Bank which helps staf for skills and the organization. Participation of External Training capacity development. The Bank has employees in various internal and established itself as a platform for external trainings is ensured to development of skills, knowledge, and enhance their capability, to motivate 48% 34% capacity of employees, and various them, and to develop their skills and activities have been performed to knowledge in line with meeting the ensure that the culture of gaining demands of a dynamic environment. knowledge is developed among TRAINING BUDGET The Bank is committed towards employees. Besides training and enrichment of knowledge and development activities, placement, skills of human assets. Developing 30 transfer, job rotation, job enrichment, a learning culture is not merely an 25 job enlargement, succession planning option but an absolute necessity and cross functional teams are some 20 in today’s competitive world. of the tools we have been employing Investment in skills and accelerating 15 for the employee development. employees’ professional and 10 personal development are essential Employees expect a fair return for components of the Bank’s people 5 what they contribute for their jobs. agenda. We recognize the importance Employee motivation, satisfaction 0 of learning and development to each Total Training Total Training and commitment are the crucial Budget 2017/18 Budget 2018/19 staf and as it is equally important to factor towards high productivity strengthen the capability of staf and which is afected by multiple factors holding them accountable to enable among which fnancial benefts is a employees to thrive and meet their full very important one. Market forces potential. constantly pose a challenge to our HR 36 MACHHAPUCHCHHRE BANK LIMITED
strategy and retaining the best brains has been in the fore front in providing is not easy. Remuneration is one of the the best facilities be it in terms of the major factors afecting one’s decision compensation packages or taking into about joining, continuing or leaving an consideration the health and wellbeing organization. Our Bank comprises of of the employees through attractive competitive Salary Packages along Insurance benefts, promoting the work with various staf benefts and facilities. life balance of the employees. Our employee receives the beneft The bank provides the following of housing loan, vehicle loan and benefts and facilities to the stafs: other staf loan facilities as per their • wages, salaries and social security individual eligibility as guided by Staf contributions, bonuses Service Bye Laws. • paid annual leave and paid sick leave, •staf loan facility at concessionary STAFF BENEFITS AND interest rate, FACITILITES AND • non-monetary benefts, RECOGNITION • Attractive Retirement packages. In this age of highly competitive business environments, the workforce PERFORMANCE CULTURE has become increasingly fuid, What really matters in the workplace and it has become a challenge for is helping employees feel appreciated. organizations to retain their valuable It has been a continuous efort of the employees. In such a scenario, one Bank to recognize the performers. of the most efective ways to reduce The Bank is building a performance employee turnover is to ensure that culture, where all employees are the level of motivation of employees is dedicated and determined to get maintained continuously at a high level. results. The Bank is determined in This results in high job satisfaction and setting up a culture which drives high- high organizational commitment, which achievement and positive results. For keeps the employees from switching this a robust mechanism for evaluating to other organizations. Hence , The the performance of each individual Bank has always put Employees has been designed which rules out First , as rightly said if we make our the subjective and biased evaluations employees happy they make our and promotes a fair and objective customers happy , so taking care of evaluation of all employees. Creating the employees has been one of the a culture of performance in the Bank major agenda of the Bank . also comes up with empowering the people, focus on continuous learning The Bank has been able to provide fair and employee development and also compensation to its employees, which openness to change. is at par at the industry level. The Bank ANNUAL REPORT 2018-19 37
EMPLOYEE RELATION We believe that the employee relation is vital to every company in every industry you could possibly think of. A strong employee relationship results in the employee feeling respected, empowered, and supported. These feelings create passion and engagement in the workplace, nurturing strong employee morale and a vibrant company culture. The Bank believes that happier/satisfed employees are more likely to work their hardest and stick with their jobs for the long haul, which afects everything from revenue to employee retention.
We have a recognized Staf’s Union Association in the Bank. The management and the Union execute a collective bargaining exercise once every two years. Collective Bargaining exercises have been harmonious throughout and has never resulted disruption in normal banking operations and customer.
The Employee Engagements programs like Annual Day Celebrations, celebrations of achievements and milestones, organizing and participation on socio-impact programs, conducting CSR programs at community level across the countries etc. have enabled to develop a strong bond and shared feeling between the team members leading to the engaged team . 38 MACHHAPUCHCHHRE BANK LIMITED
CORPORATE GOVERNANCE
Management concerns the day to day operation An internal system encompassing of the program within the context of the strategies, polices, process and people which polices, processes and procedures that have been established by the governing body. Whereas serves the needs of shareholders and governance is concerned with: doing the right thing”, other stakeholders, by directing and management is concerned with “doing things right”. controlling management activities Concepts of Corporate Governance with good business and savvy, Openness Honesty objectivity accountability and integrity. Transparency Sound Corporate Governance is Independence Accountability reliant on external market place Responsibility commitment and legislation, plus Fairness Reputation a healthy board culture which Sustainability safeguards police and processes. Ethics Stakeholder interfacing Good Board practices - GABRIELLA O’ DONOVAN Control environment Board Commitment ANNUAL REPORT 2018-19 39
MBL is committed to maintaining a of Nepal Rastra Bank and the NRB and channels for the day to day high standard of corporate governance Unifed Directives has received regular operation and enhance the good and adopts a zero tolerance approach reporting and communication from the governance practice in the Bank as to banking frauds. The Bank has CRO and other relevant functions about well. The bank has appointed an developed and implemented more the bank’s current risk profle, current external auditor who looks after the than 140 Policies, Plans, Guidelines, state of the risk culture, utilization overall internal control system and and Product papers, Byelaws etc. against the established risk appetite, implementation of policies, procedures which have periodically reviewed if and limits, limit breaches and mitigation and manuals in the Bank. On the basis appropriate, recommend amendments during the year. RMC advises the Board of facts and fndings; the external to the Board for approval for prudent on the overall risk tolerance levels of auditors provides suggestion to the risk management and to maintain the the Bank. The strategic implementation Bank by which the Bank can take corporate governance in the bank. process helps the Board, together necessary inhibition / actions for the All the stafs adhere with the internal with RMC, to ensure that a strong risk better improvement. documents as well as NRB directives, management framework is maintained. SEBON directives and other related In compliance with the code of prevailing rules, regulations and laws of The Audit Committee (AC) is formed Corporate Governance under Section 9, country. and functions in compliance to the Sub-section 2 of NRB Unifed Directive regulatory provisions of NRB Unifed No.6/2076 the Bank has formed Corporate governance is therefore Directives and the provisions of a separate Corporate Governance about what the board of Bank does and Sections 164 and 165 of Company Unit monitoring the overall corporate how it sets the values of the Bank, and Act 2063. The Coordinator and other governance status of the Bank. it is to be distinguished from the day members of AC are non-executive to day operational management of the directors. The role of AC committee Whistle blowing Bank by full-time executives. BFI’s plays secretary is performed by the Head The Bank has initiated whistle blower vital role in the overall economy of the of Internal Audit department. Internal arrangements through which staf and nation. It has the main responsibility to Auditors and Statutory Auditors have external parties may, in confdence, secure the deposits of the individuals direct access to the Audit Committee. raise concerns about possible and interest of stakeholders as well. The Committee’s role is extensive improprieties in matters of fnancial and strongly supports the board in and any other corporate governance The bank being an organization dealing with aspects of good corporate matters. Any wrong doings by any one engaged in mobilization of public governance, internal control, risks irrespective of their corporate position funds. So, Directors and executive management, fnancial reporting, legal may bring into notice of concern ofcial management have supervised and and regulatory compliance and ethical in line with Speak Up policy of the Bank monitor the activities with a higher conduct of business. as soon as we know/suspect about degree of prudence and competence. it. All cases reported are objectively Therefore, governance of the BFI’s are The Bank has formed AML Committee investigated and appropriate remedial directly concerned with the business in line with NRB directives to assist measures are taken where warranted. and security. board for fghting against money laundering and terrorist fnancing with Positive Confrmation MBL has developed the mechanism for oversight of AML/CFT framework The Bank has started positive the internal control system of overall of bank. Coordinator being the non- confrmation in the corporate operational & risk through the formation executive director, members of the governance which can be seen in the of diferent Board committees which committee are non-executive directors, monthly, quarterly and annual report have been created and mandated by CRO and Enforcement ofcer appointed that they have adhered to the Laws the full Board. They are assigned for in line with the section 7 of Asset of country, Rule & Regulation, NRB development of policies, procedures, Laundering Prevention Act 2074. Directive, Circular, Principles, Bank’s guideline and manuals. The risk internal Policies, Manuals, Procedures, management committee (RMC) is Apart from these, the Bank has Guidelines and Product papers even constituted in line with the spirit of formed organizational structure & sub the area of non-compliance has been Risk Management Guidelines (RMG) committees to defne the authorities addressed. 40 MACHHAPUCHCHHRE BANK LIMITED
REPORT ON COMPLIANCE OF CORPORATE GOVERNANCE As per Directive on Corporate Governance 2074 issued for listed entity
MBL Tower, Lazimpat, Kathamandu. 1. STATEMENT ON BOARD (Mr. Roshan K.C was chairman during Phone no: 014428556, OF DIRECTOR the period of 2074/01/14 BS to Toll Free No: 1660-01-23234, 2075/09/20 BS) Email: [email protected], A. Name & Date of appointment of Website: www.machbank.com Chairman of the Board of Directors B. Details regarding the Name: Dr. Birendra Prasad Mahato organization’s share Structure F.Y. 2075/076 Appoint date: 2075/09/20 BS (Promoter, Public & other)
SHARE NO. OF SHARE PERCENTAGE
Promoter Share 4,10,84,034 51% General Public Share 3,94,72,896 49% Total Share 8,05,56,930 100%
C. Information of Board of Director
S.N. DIRECTORS NAME REPRESENTATIVE NO OF DATE OF DATE OF OFFICE DIRECTOR & ADDRESS GROUP HOLDING APPOINTMENT & OATH TAKING APPOINTMENT SHARE PROCEDURE
1. Name: Dr. Birendra Prasad Mahato Promoter 4,90,903 2075/09/20 BS Oath of secrecy 20th Annual Address: Kathmandu District Kathmandu taken on General Metropolitan city Ward no-9, Gaushala, 2075/09/20 BS for Meeting Pinglastha, Director. Citizenship No.:15-1172/1224/3165, & Issued District : Siraha Oath of secrecy taken in front of NRB on 2075/09/24 BS for chairman
2. Name: Mr. Roshan K.C Promoter 11,95,108 2075/09/20 BS 2075/09/20 BS 20th Annual Address: Kaski District Pokahara, General Metropolitan City-7, Mustangchwok. Meeting Citizenship No.:-80016, Issued District : Kaski
3. Name: Mr. Roshan K.C Promoter 610 2075/09/20 BS 2075/09/20 BS 20th Annual Address: Kaski District Pokahara, General Metropolitan City-7, Mustangchwok. Meeting Citizenship No.:-80016, Issued District : Kaski
4. Name: Mr. Jaya Mukunda Khanal Independent Zero 2073/05/15 BS 2073/05/21 BS 324th Board Address: Kathmandu District, meeting held Metropolitan city-4, Baluwatar on 2073/05/15 BS Citizenship No.:-9516/6255, Issued District : Kathmandu ANNUAL REPORT 2018-19 41
Contd... INFORMATION OF BOARD OF DIRECTOR
S.N. DIRECTORS NAME REPRESENTATIVE NO OF DATE OF DATE OF OFFICE DIRECTOR & ADDRESS GROUP HOLDING APPOINTMENT & OATH TAKING APPOINTMENT SHARE PROCEDURE
5. Name: Ram Man Shrestha General Public 5,598 2073/09/22 BS 2073/09/22 BS 18th Annual Address: Kathmandu District, General Metropolitan-29, Dillibazar Meeting Citizenship No.:-4471/024, Issued District : Kathmandu
6. Name: Bishwa Prakash Gautam General Public 1,474 2073/09/22 BS 2073/09/22 BS 18th Annual Address: Kaski District, Pokhara General Metropolian City-7, Mustang Chwok Meeting Citizenship No.:-20945, Issued District : Rupandehi
Name: Omesh Lal Shrestha General Public 1,865 2073/09/22 BS 2073/09/22 BS 18th Annual Address: Kathmandu District, General Metropolitan City-14,Kalanki Meeting Citizenship No.:-92, Issued District : Kathmandu
Note: Information regarding Director appointed after General meeting & informed date of those information to Securities Board of Nepal: Not any
D. Board of Directors Meeting Information of Board of Director Meeting:
S.N DATE OF BOD MEETING ON THIS FY 2075/076 NUMBER OF NUMBER OF DATE OF BOD MEETING ON LAST FY 2074/075 DATE OF MEETING NO. OF MEETING DIRECTOR DIRECTOR DISSENTING DATE OF MEETING NO. OF MEETING PRESENT ON DECISION 1. 2075/04/04 BS 375 6 None 2074/04/12 BS 352 2. 2075/04/13 BS 376 5 None 2074/04/21 BS 353 3. 2075/04/23 BS 377 6 None 2074/04/22 BS 354 4. 2075/05/13 BS 378 6 None 2074/05/05 BS 355 5. 2075/06/11 BS 379 6 None 2074/05/29 BS 356 6. 2075/06/22 BS 380 6 None 2074/06/04 BS 357 7. 2075/06/28 BS 381 6 None 2074/06/25 BS 358 8. 2075/07/14 BS 382 6 None 2074/07/02 BS 359 9. 2075/08/05 BS 383 6 None 2074/07/22 BS 360 10. 2075/08/13 BS 384 6 None 2074/07/29 BS 361 11. 2075/08/26 BS 385 6 None 2074/08/14 BS 362 12. 2075/09/13 BS 386 6 None 2074/08/15 BS 363 13. 2075/09/19 BS 387 6 None 2074/09/03 BS 364 14. 2075/09/20 BS 388 7 None 2074/09/28 BS 365 15. 2075/10/03 BS 389 7 None 2074/11/03 BS 366 16. 2075/11/10 BS 390 6 None 2074/11/16 BS 367 17. 2075/12/01 BS 391 7 None 2074/11/28 BS 368 18. 2075/12/13 BS 392 7 None 2074/12/20 BS 369 19. 2076/01/12 BS 393 7 None 2074/12/28 BS 370 20. 2076/01/27 BS 394 7 None 2075/01/26 BS 371 42 MACHHAPUCHCHHRE BANK LIMITED
Contd... D. BOARD OF DIRECTORS MEETING
S.N DATE OF BOD MEETING ON THIS FY 2075/076 NUMBER OF NUMBER OF DATE OF BOD MEETING ON LAST FY 2074/075 DATE OF MEETING NO. OF MEETING DIRECTOR DIRECTOR DISSENTING DATE OF MEETING NO. OF MEETING PRESENT ON DECISION 21. 2076/02/02 BS 395 7 None 2075/02/28 BS 372 22. 2076/03/04 BS 396 6 None 2075/03/01 BS 373 23. 2076/03/13 BS 397 7 None 2075/03/15 BS 374 24. 2076/03/16 BS 398 7 None — — 25. 2076/03/30 BS 399 7 None — —
- Board meeting postponed due to lack of quorum: Not any
Other Details Related to Board Meeting: Information on absence of Directors or alternate Director in Board Meeting.
S.N. DATE OF MEETING ABSENT DIRECTOR NAMESENT REASON FOR ABSENT 1. 2075/04/13 BS Mr. Roshan K.C Out of the Country 2. 2075/11/10 BS Mr. Omesh Lal Shreatha Out of the Country 3. 2076/03/04 BS Mr. Omesh Lal Shreatha Out of the Country 4. 2076/03/30 BS Mr. Ram Man Shrestha Out of the Country
Directors present in board meeting, agenda discussed & decision on (Minutes) kept separately or not. Maintained Maximum diference on two Board meeting (days) 38 days Date of annual general meeting for determination of allowance of meeting 2075/09/20 BS Board meeting allowance (Per meeting) Chairman: 15,000 Member : 12,000 Total Board Meeting Expenses for this FY 31,75,359
2. ARRANGEMENTS & OTHER DETAILS REGARDING THE CONDUCT OF BOARD OF DIRECTOR
Is there a code of conduct for directors Yes Details on more than one director of a single family (if applicable) Not Applicable
Detail of Directors’ annual learning and refreshment program
S.N. PARTICULAR DATE NUMBER OF PARTICIPATED DIRECTOR TRAINING LOCATION 1. The structure of the bank, the nature of the 2075/10/02 BS 3 Machhapuchchhre bank business, the corporate governance, corporate ltd, strategy, business plan, duties & responsibilities Head ofce of the directors, strategy adopted in relation to MBL tower, risk management, overall economic & fnancial Lazimpat, Kathmandu situation, current legal provisions, prevailing banking services & practices and the instructions issued by Nepal Rastra Bank.
2. Interaction program on “Observation seen in 2075/09/12 BS 2 Yak & Yeti Hotel Corporate Governance, Money laundering & Risk Management.” ANNUAL REPORT 2018-19 43
Has each director submitted written information on following matter within 15 days from Self-declaration obtained from directors pursu- the date of appointment, details if not. ant to the section 92(1) of the Companies Act Details of any contract entered into/to be entered by the director or any close member of 2063 and Section 24 of the Banks & Financial his family with the organization. Institutions Act 2073 Details of shares or debentures held by the director or close member of his family of entity or of its holding or subsidiary company. Details of share hold or directorship in any other company Details of any close family member working as ofcer or employee of the entity Details of director who is also a director, ofcer, CEO or employee of other listed entity Not applicable which has similar objective as the entity. A description of any action taken by the regulatory body and other agencies against mem- There is no information that such action was ber of the Board taken
3. DETAILS REGARDING THE ORGANIZATION’S RISK MANAGEMENT & INTERNAL CONTROL SYSTEM
A. Risk management committee formed or not, if not, mention reason for not formation : Formed (Risk Management Committee) B. Information regarding Risk Management Committee a. Committee Structure ( Coordinator & Member: Names and Posts)
S.N NAME POST COMMITTEE 1. Mr. Bishwo Prakash Gautam Coordinator Director 2. Mr. Gopi Krishna Neupane Member Director 3. Mr. Madhav Subedi Member Deputy chief Operating Ofcer (DCOO) 4. Mr. Bishwambhar Neupane Member Secretary Chief Risk Management Ofcer b. Number of Committee Meeting : 12 time c. Short Details of Committee Work: The report will be submitted to the Board of Directors by monitoring and managing the various risks (loans, operations, markets, etc.) inherent in the bank and carrying out the tasks, duties and responsibilities specifed by the Integrated Directive, issued mainly by the Nepal Rastra Bank. Efect of action on giving necessary suggestions to the bank management in relation as has been the rival.
C. Whether or not there is an internal control mechanism: yes, we have. D. Internal control system formed or not, if not, mention reason for not formed : Formed E. Details of Internal Control System Committee: a. Structure of Committee (Coordinator & Member name & post) i. Loan Risk Committee
S.N NAME POST COMMITTEE 1. Mr. Bishwambhar Neupane Coordinator Chief Risk Management Ofcer 2. Mr. Sarju Kumar Thapa Member Chief Loan Ofcer 3. Mr. Manish Dahal Member Chief Special Assets Management 4. Mr. Dilli Ram Giri Secretary Member Chief Loan Risk n Number of Committee Meeting : 13 n Short Details of Committee Work: Debt Risk Management Committee Risk to revise the required rules and regulations regarding debt risk reduction from time to time. Submitting proposals to the Management Committee and periodically reviewing the area loan risk and making necessary recommendations to the management. 44 MACHHAPUCHCHHRE BANK LIMITED
ii. Operation Risk Committee
S.N NAME POST COMMITTEE 1. Mr. Bishwambhar Neupane Coordinator Chief Risk Management Ofcer 2. Mrs. Pushpa Shrestha Member In-charge Operation Risk Department 3. Mrs. Anita Subedi Member Operation Risk Department 4. Mrs. Sunita Dangol Secretary Member Operation Risk Department n Committee Meeting held number : 5 time n Short Details of Committee Work: The Operations Risk Management Committee will submit proposals to the Risk Management Committee to revise the required rules and regulations in a timely manner, and periodically review the risk of feld operations and give necessary suggestions to the management of operations.
F. Whether or not Financial & Administrator Bylaw are in place: Yes, have
4. INFORMATION AND DETAILS REGARDING INFORMATION FLOW
A. Details of information and information fows made by the organization
PARTICULAR MEDIUM PUBLISHED DATE Information of Annual General Meeting News Paper 2075/08/28 BS and 2075/09/10 BS Information of Special General Meeting Not any Annual Report News Paper 3rd Quarter Report News Paper 2076/04/03 BS Notice of afdavit afecting the value of the security News Paper Financial statements are published on regular basis. Other
B. Information related to action taken by the Securities Board of Nepal and other agencies to whether the information wasn’t made public or for other reasons: have not C. Last Annual & Special General Meeting Held Date : 2075/09/20 BS
5. DETAILS OF STAFF & INSTITUTIONAL STRUCTURE
A. Whether or Not having the terms and conditions of the Employees Service Terms, Regulations / Arrangements, including the structure of employees, Recruitments, Job Development, training, salary, allowances, and other facilities, attendance and leave : Yes, Have B. To attached the Organizational Structure: Has Been attached C. Details regarding the names, educational qualifcations and experience of employees at the higher management level
S.N NAME POSITION EDUCATION EXPERIENCE 1. Suman Sharma Chief Executive MBA/ MA Economics/ 21 years & 11 month experience on Banking Industry Ofcer MSC Physics 2. Santosh Koirala Deputy Chief MBA 19 years experience on Banking Industry Executive Ofcer 3. Bishwambhar Neupane Assistant General MBA 22 years experience on Banking Industry Manager, Chief Risk Management Ofcer 4. Sarju Kumar Thapa Assistant General MBA 19 years experience on Banking Industry Manager, Chief Loan Management ofcer 5. Narayan Prakash Bhuju Assistant General MBS 19 years experience on Banking Industry Manager, Chief Technology Ofcer ANNUAL REPORT 2018-19 45
D. Other Details Regarding Staf
STRUCTURED STAFF POSITION REMARKS The Procedure adopted when recruited new staf Open Competition & talent Hunt- Employee Service by Law, 2074 Number of staf at Managerial Level 73 Total staf at service 1,195 Whether or not employee have a succession plan Number of Participated staf & training on this FY 2075/076 No. of Training : 208 No. of participated staf: 2228 Training expenses on FY 2075/076 2,67,45,204.79 Percentage of Staf expenses on total expenses 12.65% (59.03% of total Operational expenses) Percentage of Training expenses on total staf expenses 2.17% ( Total expenses of FY 2075/06)
6. STATEMENT OF ACCOUNTING & AUDIT OF THE ORGANIZATION
A. Accounting Details:
Reason for organization’s last income year fnancial statement prepared or not in accordance with NFRS Yes, Prepared Date of fnancial statement approved by board of director 2075/08/26 BS Published date of third quarter fnancial statement 2076/04/03 BS Accomplish date of fnal audit 2076/05/11 BS Approved date of Financial Statement from Annual General Meeting 2075/09/20 Internal Audit related details of Organization: a. Internally audited or appointed external expert b. Details if appointed external expert c. How much longer the internal audit done? (Quarterly or Annually No any external expert appointed for Internal Audit
B. Details of Audit Committee Name, Post & Education of Coordinator & member:
S.N. NAME COMMITTEE POST EDUCATION 1. Mr. Gopi Krishna Neupane Coordinator Director MBA 2. Mr. Omesh Lal Shrestha Member Director Master of Science in Information System 3. Mr. Khagendra Paudel Member Secretary Deputy Chief Internal audit CA /MBS
Date of Meeting & Number of Member Present:
S.N. DATE OF MEETING NUMBER OF MEMBER PRESENT S.N. DATE OF MEETING NUMBER OF MEMBER PRESENT 1. 2075/04/13 BS 3 12. 2075/09/09 BS 3 2. 2075/04/22 BS 3 13. 2075/10/03 BS 3 3. 2075/05/04 BS 3 14. 2075/10/24 BS 3 4. 2075/06/18 BS 3 15. 2075/12/14 BS 3 5. 2075/06/19 BS 3 16. 2075/12/19 BS 3 6. 2075/07/13 BS 3 17. 2075/12/20 BS 3 7. 2075/07/14 BS 3 18. 2076/01/06 BS 3 8. 2075/07/28 BS 3 19. 2076/01/25 BS 3 9. 2075/08/05 BS 3 20. 2076/02/02 BS 3 10. 2075/08/26 BS 3 21. 2076/02/08 BS 3 11. 2075/09/03 BS 3 22. 2076/03/19 BS 3 46 MACHHAPUCHCHHRE BANK LIMITED
Allowance per meeting NPR 12,000 including tax to Board of director The date the Audit Committee submitted its report to The Audit Committee has submitted its report of its proceedings and the the Board of Directors meeting decisions of each committee to the Board of Directors
A. Other Details
The institution has taken money from the bank and fnancial institutions, loans or advanc- Not Taken es or any other form of fnancial interest to the director and his family No person, frm, company, employee, consultant or consultant has any ownership of the Self-Declaration Submitted assets of the organization in any way, except as per the laws of the company, as a director, shareholder, employee, consultant, consultant or benefciary Whether or not the regulatory body has complied with the terms and conditions of issuing Complied the license Whether or not the regulatory body has complied with the direction given to the organiza- Complied tion while inspecting or supervising the organization A statement of the case against the institution or operator if there is a case going on in the Since banking is a business entity, there are court no signifcant issues other than those fled in connection with the regular operation of the organization and the loan transaction.
Name of Governing Ofcer: Tika Bhattarai Post: Chief Legal Ofcer Imprint of Organization: Date approved by the Reporting Board: 402nd Board Meeting held on 2076/04/29 Date of audit test Certifed: 2076/04/29 ANNUAL REPORT 2018-19 47
DIRECTOR’S REPORT
This report has been prepared adhering to provisions of Companies Act, 2063, Bank and Financial Institutions Act, 2073 and all directives/ circulars issued by Nepal Rastra Bank from time to time.
Dear shareholders, provisions of the Companies Act 2063, and 6.8 percent respectively in 2018. Bank and Financial Institutions Act Infation has been projected to remain On behalf of the board and the Bank, I 2073 and all directives/circulars issued at 1.6 percent in the developed would like to extend a warm welcome by Nepal Rastra Bank. country and 4.8 percent in the to all the respected shareholders, emerging and developing country the external auditors, the legal I, on behalf of the BOD of the Bank, in 2019. Infation in these economies advisors, the Chief Executive Ofcer would like to present to you -all the remained 2.0 percent and 4.8 percent and the employees of the Bank. indicators of the Banking Industry respectively in 2018. Thank you all for joining us in the 21st along with the assessment of the Annual General Meeting program work of previous Fiscal year, Business Brent Crude Oil was priced at 71.03 of Machhapuchchhre Bank Limited. Strategies and future initiatives. USD per barrel in Mid-July, 2018 which As you have entrusted us with the however has fallen by 7.3 percent responsibility of Board of Directors International Economic and the price is decreased to 65.87 of the Bank for making it stronger, USD per barrel on Mid-July, 2019. This remarkable and ever growing; your Scenario seems to lower the trade defcit of trust and confdence towards us have Nepal to some extent. However, price undoubtedly fueled up our eforts International Monetary Fund (IMF) has of Gold which was 1241.10 USD per towards continued commitment projected the world economy to grow ounce in Mid-July, 2018 has soared for the prosperity of the Bank. We by 3.2 percent in 2019 compared to over by 13.6 percent and the price is assure you that we will always be 3.6 percent in 2018. During 2018, the increased to 1409.85 USD per ounce. working relentlessly to live to up to economic growth of the developed the expectation. I would like to present country and the emerging and Economic Situation of to you the Statement of Financial developing country were 2.2 percent Position as on 16 July 2019, Statement and 4.5 percent respectively, perhaps the Nation of Proft or Loss for the Fiscal Year IMF has projected them to grow by 1.9 2018/19, , Cash Flow Statement along percent and 4.1 percent respectively A SCENARIO with the Bank’s achievements during in 2019. Also, for the neighboring In the Fiscal Year 2018/19, economic the period, challenges faced during countries China and India, IMF has growth is estimated to be 7.1 percent. operation, overall assessment of the projected the Chinese and Indian Growth in Agricultural sector is Banking Industry, Director’s Report economies to grow by 6.2 percent estimated to be 5.0 percent, Industrial and all other Financial Information. This and 7.0 percent respectively in 2019. Sector to be 8.2 percent and Service report has been prepared adhering to These economies grew by 6.6 percent Sector to be 7.3 percent. In Fiscal 48 MACHHAPUCHCHHRE BANK LIMITED
Year 2018/19, Agricultural, Industrial export to China, it has shown a decline ratio with total GDP remained at 25.1 and Service Sectors seem to have of 13.5 percent. Export of goods such percent which was 26.3 percent over contributed 27.0 percent, 15.2 percent as Palm Oil, Polyester Yarn, Jute the same period of previous year. and 57.8 percent to the Gross Products, Pulses, Noodles, etc. have Net transfer income increased by 1.5 Domestic Product (GDP) respectively. increased while exports of Cardamom, percent to NPR 864 Billion 670 Million Likewise, the Gross Domestic Savings Readymade clothes, Pashmina, Shoes in the review period. Such income had has remained 20.5 percent of total and Slippers, Leather products, etc. increased by 9.5 percent in the same GDP in Fiscal Year 2018/19. Gross have declined. period previous year. Capital Formation, Gross Fixed Capital Formation and Gross National Savings Similarly, during Fiscal year 2018/19, Number of Nepali workers migrating are 62.3 percent, 36.9 percent and 52.4 total import of goods has increased for foreign employment based on work percent of GDP respectively. In tourism by 13.9 percent and reached NPR 1418 permit (except renew entry) decreased sector, the arrivals of tourists have Billion 540 Million. It had increased by by 10.1 percent compared to previous increased by 23.9 percent with the total 25.8 percent in previous year. Imports year. It had decreased by 4.7 percent number of 1,238,589 tourists visiting direction shows import growth of in the same period previous year. the Nepal in the Fiscal Year 2018/19. 12.8 percent from India, 25.8 percent Number of workers migrating to Increase in agricultural production, from China and 8.9 percent from countries such as Malaysia, United ease in energy supply, acceleration other countries. Import of goods such Arab Emirates and Kuwait has in construction activities, expansion as Gasoline, Readymade clothes, increased during the review period, in industrial production, and an Electronics, Other machinery parts, whereas it has decreased in countries exponential rise in tourist arrival have M.S. Billets, etc. have increased while such as Saudi Arabia and Qatar. contributed to the higher economic imports of Cement, Vehicle and parts, growth of the country. Telecommunication equipment and FOREIGN EXCHANGE parts, Medical Equipment and tools, RESERVE INFLATION Plastic granules, etc. have declined. Gross Foreign Exchange Reserves The average Consumer Price Infation remains at NPR 1038 Billion 920 Million in Fiscal Year 2018/19 was 4.6 percent. Based on the entry points, exports in Mid-July, 2019 that was NPR 1102 Such infation was 4.2 percent in from Customs Ofces (except Dry Billion 590 Million in Mid-July, 2018. In previous year. The annual infation Port Customs Ofce and Krishnanagar terms of US Dollar, the Gross Foreign rate of Food and Beverage Group is Customs Ofce) have increased while Exchange remains at NPR 9 Billion 500 3.1 percent. This was 2.7 percent in imports from Customs Ofces (except Million in Mid-July, 2018 which was previous Fiscal Year. Likewise, the Krishnanagar Customs Ofce) have NPR 10 Billion 80 Million in Mid-July, annual infation rate of Non-food and increased. 2019. Service Group is 5.9 percent. This was 5.3 percent in previous Fiscal Year. The During Fiscal Year 2018/19, the total Of the total foreign exchange reserves, annual Consumer Price Index (CPI) was trade defcit has widened by 13.5 reserves held by Nepal Rastra Bank 6.0 percent in July 2019. Similarly, the percent amounting NPR 1321 Billion (NRB) remains at NPR 902 Billion 440 annual Wholesale Price Index (WPI) 430 Million. The ratio of the trade defcit Million in Mid-July, 2019. This was NPR was 5.4 percent in July, 2019 which was with total GDP reached 38.1 percent. 989 Billion 400 Million in Mid-July, 2.1 percent in previous year. The Export-Import ratio is 6.8 percent 2019. Reserves held by Banks and during the review period which was 6.5 Financial Institutions (except NRB) FOREIGN TRADE percent previous year. remains at NPR 136 Billion 470 Million Total exports of goods increased by in Mid-July, 2019. This was NPR 113 19.4 percent during the review period REMITTANCE INFLOWS Billion 190 Million in Mid-July, 2018. reaching NPR 97 Billion 110 Million. Remittance infows increased by 8.6 The share of Indian currency in total It had increased by 11.4 percent in percent to NPR 755 Billion 60 Million reserves stood at 23.6 percent in Mid- previous year. Export direction shows in the review period compared with an July, 2019. an export growth of 34.3 percent increase of 4.6 percent over the same to India and 0.2 percent to other period of the previous year. During the EXCHANGE RATE countries. However, in context of review period, the Remittance infow Nepalese currency vis-à-vis US Dollar ANNUAL REPORT 2018-19 49
depreciated 0.02 percent in Mid-July, sector increased 20.3 percent, Billion 240 Million in the review period. 2019 compared to Mid-July, 2018. It construction sector increased 22.2 Indian Currency equivalent to NPR 522 had depreciated 5.9 percent in the percent, transportation, communication Billion 30 Million was purchased in the same period of the previous year. The and public sector increased 32.8 same period previous year. buying exchange rate per US Dollar percent, wholesale and retail business stood at NPR 109.36 in Mid-July, 2019 increased 15.7 percent and service INTEREST RATE compared to NPR 109.34 in Mid-July, industry sector increased 24.3 percent The weighted average 91-day Treasury 2018. The buying exchange rate per US in the review period. In the review bills rate increased to 4.97 percent in Dollar stood maximum at NPR 118.73 in period, term loan extended by BFIs July, 2019 from 3.74 percent a year October 10, 2018. increased 32.8 percent, overdraft ago. The weighted average inter-bank increased by 10. 9 percent, trust transaction rate among commercial DEPOSIT COLLECTION AND receipt (import) loan increased by banks, which was 2.96 percent a year LOAN DISBURSEMENT 11.7 percent, demand and working ago, increased to 4.52 percent July, The total deposits of Bank and capital loan increased by 26.6 percent, 2019. Financial Institutions (BFIs) has real estate loan (including residential increased by 18 percent during the personal home loan) increased by 12 The average base rate of commercial review year. It had increased by percent, margin nature loan increased banks decreased to 9.57 percent in July, 19.2 percent in the previous year. In by 10.5 percent and hire purchase loan 2019 from 10.47 percent a year ago. Mid-July 2019, the portion of Current, increased by 5.8 percent. Weighted average deposit and lending Savings & Fixed deposit in total deposit rates of commercial banks stood at 6.60 of BFIs settled at 9.7 percent, 32.8 LIQUIDITY MANAGEMENT percent and 12.93 percent respectively percent and 46.3 percent respectively. In the Fiscal Year 2018/19, NPR 100 in July 2019. Such rates were 6.49 It was 9.3 percent, 34.5 percent and Billion 350 Million liquidity was mopped percent and 12.47 percent respectively 44.8 percent during the same period up through open market operations. in the corresponding month of the in previous year. In July 2019, the In the review period, liquidity of NPR previous year. portion of Institutional Deposit in 79 Billion 650 Million was mopped total deposit settled at 45.3 percent. through auction and NPR 20 Billion 700 MERGER AND ACQUISITION It was 45 percent in the same period Million through Reverse Repo. Liquidity With an aim to bolster Financial Stability, previous year. Likewise, the total loan of Rs.115 Billion was mopped up in the after the initiation of merger and disbursed by BFIs has increased by corresponding period of the previous acquisition process by NRB, the number 19.4 percent during the review year. year. In Fiscal Year 2018/19, NPR 322 of BFIs involved in this process have It had increased by 22.5 percent in Billion 490 Million liquidity was injected reached 171 till July, 2019. Out of which, same period previous year. Out of including NPR 168 Billion 160 Million the license of 128 BFIs was revoked loan disbursed from Private Sectors, through Repo and NPR 154 Billion thereby forming 43 BFIs. Commercial Banks, Development 330 Million through Standing Liquidity Banks and Finance Companies has Facility (SLF). In the review period, NRB FINANCIAL ACCESS seen growth of 17.5 percent, 35.7 injected liquidity of NPR 360 Billion 910 Of the total 753 local units, Commercial percent and 17.9 percent respectively. Million through the net purchase of Banks extended their branches at 735 Of the total outstanding credit of the USD 3 Billion 190 Million from foreign units as of July, 2019. The total number BFIs in Mid-July, 2019, 64.4 percent exchange market (Commercial Banks). of BFIs licensed by NRB stand at 171 is against the collateral of land and Liquidity of NPR 422 Billion 340 Million in July, 2019. This was 151 in the same building and 13.5 percent against the was injected through the net purchase period a year ago. Accordingly, 28 collateral of current assets (agricultural of USD 4 Billion 50 Million in the Commercial Banks, 29 Development and non-agricultural products). Such corresponding period of the previous Banks, 23 Finance Companies, 90 ratios were 61.7 percent and 14.4 year. NRB purchased Indian currency Microfnance Financial Institutions and 1 percent respectively a year ago. Loan (INR) equivalent to NPR 516 Billion 970 Infrastructure Development Bank are in of BFIs to agriculture sector increased Million through the sale of USD and operation. The number of BFIs branches 42.5 percent, industrial production other convertible foreign currencies 4 reached 8,686 in July, 2019 from 6,659 in July, 2018.. 50 MACHHAPUCHCHHRE BANK LIMITED
DEPOSIT AND CREDIT 2018, Credit Guarantee worth 14 Billion GLIMPSE OF BANK GUARANTEE 350 Million had been done. OPERATIONS SUMMARY OF Deposit and Credit Guarantee Fund CURRENT FISCAL YEAR (DCGF) has made Deposit Guarantee (Source: Nepal Rastra Bank) of NPR 603 Billion 380 Million to the The business position of the Bank till Saving, Current, Call and Fixed Deposit Respected Shareholders, now I would frst 2 months of Current Fiscal Year is of 85 banks and fnancial institution like to present to you the summary of depicted as below: belonging to 20 Million 210 Thousand fnancial and other progress details of Natural Persons that was deposited review period of Machhapuchchhre within Mid July, 2019. In Mid-July, Bank Limited. 2018, Deposit Guarantee was done (Amount in crore) amounting NPR 430 Billion 740 Million S.N. HEADING 16 JULY 2019 17 SEPT 2019 worth of deposits belonging to 10 Million 930 Thousand depositors. 1. Paid Up Capital 805.57 805.57 2. Deposit 9,156.02 9,110.65 Likewise, DCGF has made Credit 3. Investment 1,050.61 1,125.89 Guarantee amounting NPR 25 Billion 4. Loan and Advances 7,553.59 8,219.85
660 Million of Micro & Deprived Sector Investments have increased by NPR 750 Million (7.17 percent) in the frst month of current fscal year Loan, Small and Medium Enterprise compared to Mid-July, 2019. Whereas, Loans and Advances has increased by NPR 6 Billion 660 Million Loan and Agriculture Loan. In Mid-July, (8.82 percent).
AN OVERVIEW OF BUSINESS OF PREVIOUS FISCAL YEAR 2018/19 The key indicators of fnancial achievements of the Bank in Fiscal Year 2017/18 and Fiscal Year 2018/19 are as follows:
(Amount in crore)
HEADING 2017/18 2018/19 INCREMENT (IN PERCENT)
Paid Up Capital 805.57 805.57 0.00% Net Worth 1,035.69 1,1123.69 8.50% Deposit 7,247 9,156.02 26.33% Investment 773.21 1,050.61 35.88% Loans and Advances 6,421.56 7,753.59 20.47% Interest Income 776.64 1,017.75 31.05% Interest Expense 502.66 662.78 31.86% Net Interest Income 273.98 354.98 29.56% Other Income 67.00 112.19 67.44% Employee Expense 87.46 123.04 40.67% Operating Expense 41.95 72.36 72.49% Operating Proft 180.83 240.03 32.74% Net Proft after tax 124.97 169.71 35.80% Loan Loss Provision 85.16 96.88 13.76% Non-Performing Loan 0.44% 0.37% -0.07% Total Assets 8,478.76 10,524.60 24.13% Capital Adequacy 15.36% 12.79% -2.57% Book Value per Share 128.57 139.49 8.49% Market Price per Share 209 264 26.32% Number of branches (including extension counter) 88 131 48.86% Number of ATMs 93 144 54.84% Total Employees 953 1195 25.39% ANNUAL REPORT 2018-19 51
Compared to previous Fiscal Year, Call deposit within the review period. within Mid-July, which is 5.24 percent Bank’s Deposit has grown by 26.33 The Bank had modifed some of the of the total loan circulated (before 6 percent, whereas Loans and Advances existing features and services and months) by the Bank. have increased by 20.74 percent in the introduced new schemes on its saving review period. products as per its strategies to be Within the review period, Bank’s total executed on FY 2018/19. Because loan circulation occupies 3.44 percent Net interest income has increased of this, the Bank has been able to of the overall loan circulated by the by 29.56 percent since both interest open 239,601 new accounts that has banking sector, which is 3.11 percent of income and interest expense have increased deposit amount by 22.03 the total loan increment of the market. increased by 31.05 percent and 31.86 percent than previous FY. The Bank Last year, the Bank had occupied only percent respectively. Employee has decided to continue its strategy 3.05 percent of the total loan increment Expenses and other Operating to open new accounts and increase of the market. Nepal Rastra Bank Expenses have increased by 40.67 deposit in the coming years as had allocated a limit of 10 percent in percent and 72.49 percent respectively well. Bank’s total number of savings Agriculture and 15 percent in Tourism in the review period. accounts till the end of review period and Energy. Out of the limit allocated is 719,295. Bank’s current and savings by NRB, the Bank has circulated The ratio of total Non-Performing Loan deposit consists 33.74 percent of the 13.31 percent and 17.04 percent in stands at 0.37 percent which was 0.44 total deposit which was 33.73 percent Agriculture sector and Energy and percent in the previous fscal year. in the previous year. Tourism sector respectively. Along with The ratio of Non-Performing Loan that, the deprived sector lending of the falls within the range as prescribed by As per the instruction of Nepal Rastra Bank is 5.24 percent which, as per NRB, International standards. In the review Bank, the Bank has to maintain 50 shouldn’t exceed 5 percent of the total period, the Total Asset of the Bank has percent of institutional deposit out loan investment (before 6 months). The increased by 24.13 percent, whereas of total deposit. Therefore, the Bank total loan loss provision has increased Book Value per Share and Net Proft is successful to maintain the both from last year’s NPR 851.6 Million and has increased by 8.49 percent and personal and institutional deposit with reached NPR 968.8 Million. NPR 117.2 35.80 percent respectively. the prescribed instructions presented Million has been provisioned for loan as: loss purpose for this year. The ratio of PAID UP CAPITAL AND Non-performing loan to total loan loss provision is 333.05 percent. Last year, CAPITAL ADEQUACY RATIO DEPOSIT TYPE % The Capital Adequacy Ratio (CAR) the ratio of total bad loan to total loan Individual Deposit 66.07 remains at 12.79 percent during the was 0.24 percent, which has improved Institutional Deposit 33.93 Fiscal Year 2018/19. This CAR ratio is drastically this year and has remained Total Deposit 100.00 1.79 percent higher than the minimum at 0.12 percent. CAR (11 percent) prescribed by the Regulatory Authority Nepal Rastra LOAN AND LOAN LOSS PROVISION The Bank has emphasized on Bank. It is therefore evident that the Bank’s total loan amount has increased circulation of low risk loans as per Bank is in a strong fnancial position. by 20.74 percent from the previous its strategies to meet the objectives. year and reached NPR 77.53 Billion Keeping in mind the possible risks DEPOSIT in the review period. In the same that may arise from loans expansion Within the review period, Bank’s total duration, the average increase rate of in the future, the Bank has put deposit increased by 26.33 percent commercial banks is 18.36 percent. forward strategies to strengthen from the previous fscal year and Even though the banking sector lacked its loan recovery process and risk reached NPR 91. 56 Billion. In the enough fund for loan expansion, Bank’s management system. same period, the average deposit 20.74 percent increase in loan is above increase rate of commercial banks average in overall banking sector. INVESTMENT is about 16.53 percent. The Bank has The investment has increased by achieved a growth of 12.25 percent With the view to increase investment, 35.88 percent from last year and has in Fixed Deposit, 22.3 percent in a total of 3.92 Billion deprived sector reached 10.50 Billion within the review Savings Deposit and 38.04 percent in loans have been already circulated period. Out of the total investment, 52 MACHHAPUCHCHHRE BANK LIMITED
the Bank has invested 12.92 percent, percent. Due to the massive increase remittance. With the aim of increasing 83.2 percent and 29.63 percent in in deposit, increase in the interest the contribution of commission and Treasury Bills, Government Bills and rates of fxed deposit, conversion of other operating proft in net proft, other investments respectively. small and minimum interest providing Bank has introduced new features and deposits into high interest yielding services and has also made relevant The Bank has been expanding its fxed deposits and the massive loan amendments in the review period. investment horizon in order to make expansion caused liquidity crisis Bank has started its own remittance the maximum utilization of available which resulted in the high demand of service, credit card and Point of Sale investment funds, to diversify its deposits. Due to which Bank’s interest (POS) in the review period, which shall investment portfolio and to get high expenses on deposits increased by help in increasing commission incomes yields from low investments. In the 30.66 percent in the review period. As in the coming years. review period, Bank has invested NPR a result, Bank’s yearly average interest 197.9 million in Mutual Funds and increased by 0.79 points and remained OTHER OPERATING INCOMES Shares. Major investments, made in the 7.99 percent. Bank’s other operating income has capital market, are in those companies increased by 211.5 percent and which provide dividends as sustainable According to the strategy to increase reached NPR 28.1 Million in the review earnings on a long-run. The Bank has CASA ratio in overall deposit, the Bank period which was only NPR 9.03 Million earned NPR 3.20 Million from such has introduced various saving deposit in the previous year. investments in the review period. schemes. The Bank is confdent that the cost of the Bank’s deposits will STAFF EXPENSES INTEREST INCOME gradually improve in the coming days Bank’s net staf expenses has The interest income of the Bank has and the cost of the overall Bank’s funds increased by 40.67 percent and increased by 31.05 percent amounting will be reduced.. reached NPR 1.23 Billion in the review 10.17 Billion in the review period. In period which was NPR 874.6 Million the same period, the Bank’s interest NET INTEREST INCOME in the previous year. Opening of 45 income from loan has increased by The net interest income has reached new branches, fulfllment of staf 29.98 percent amounting 9.56 Billion 3.54 Billion which has increased by requirements in existing branches and whereas the interest income from 29.56 percent from last year as a result departments with the aim of gradually other investments has increased by of efective management. increasing business, hiring of additional 50.31 percent amounting 611.9 Million. new stafs in compared to the previous The Bank has put forward the strategy year, and the regular promotions In the review period, Bank’s yearly to make optimum utilization of the carried out after annual performance average return on loan increased by available funds by focusing on appraisal has resulted in the increase 0.98 point and the interest remained efective management of deposit and of staf expenses in the review period. 13.20 percent due to the liquidity loan ratio and net interest diference. crisis. The Bank substituted the Total number of stafs has reached investments yielding low returns with NET COST AND 1,195 in the review period with the the investments having high returns. COMMISSION INCOME addition of 242 new staf from last year. This resulted in the increase of average Net cost and commission income Bank has always paid attention on the return on investment to 5.03 percent in based on non-fund are also the training and skills development of the fnal quarter which was 4.55 percent in major sources of income of the stafs. The staf training expenses in the the frst quarter. Bank. This year, the Bank has earned review period is NPR 267 Million. NPR 72.05 million from commission INTEREST EXPENSES and other operating income, which As per Nepal Rastra Bank, a Bank must In the review period, Bank’s interest is an increment of 63.95 percent spend 3 percent of last fscal year’s expenses has increased by 31.86 in compared to the previous year. total staf expenses in stafs’ training percent and reached 6.62 Billion. In In the review period, the Bank has and skill development. The expenses the same duration, the Bank’s interest achieved exciting increment in the made for the stafs’ training and skill expenses on deposit has reached incomes generated from loans, debit development this year is 3.06 percent 6.51 Billion by increasing 30.66 card, credit card, Bancassurance and ANNUAL REPORT 2018-19 53
of the total staf expenses made OTHER OPERATING EXPENSES RETURN ON ASSETS last year. Bank believes that human In the review period, Bank’s other Bank’s return on assets has increased resources are the most valuable assets operating expenses has increased by by 0.14 percent and reached 1.61 an organization can own. The Bank 61.79 percent and reached NPR 923.9 percent in the review period which was also believes that the expenses made Million, which was NPR 571.1 Million 1.47 percent in the previous year. to hire required number of stafs and to in the previous year. Increase in the strengthen their skills are not expenses number of stafs, opening of 45 new PAYMENT MADE BY THE BANK AFTER but investments which shall make branches, various activities carried TAX DEDUCTED AT SOURCE AND the Bank more capable and increase out to promote business in order to INCOME business along with the proft in the achieve objectives are the reasons The Bank has contributed to the coming years. for the increase in the total operating revenue of exchequer by depositing expenses. withholding tax payment of 1.01 Billion UNDERWRITING AND DEPRECIATION and paying tax of 73.24 Crore, thereby Bank’s underwriting and depreciation Even though the expenses seem high contribution total 1.74 Billion. has increased by 30.37 percent and right now, the Bank believes that these reached NPR 130.3 Million in the review investments will help in gradually PROFIT/ LOSS DISTRIBUTION DETAIL period which was NPR 100 Million in increasing business in the coming Bank has earned a total proft of NPR the previous year. days. Also, it shall increase work 169.71 Billion in this fscal year and the efectiveness and efciency reducing details of the proft distribution details the total expenses which shall have a is as follows: positive impact on the Bank’s fnancial fgures.
DETAILS THIS YEAR NPR LAST YEAR NPR
Accumulated profts up to last year 80.87 122.90 Adjustment (1.27) Total 79.509 122.9 Transfer from Share Premium - This year’s profts 161.69 127.97 Employee Skills Enhancement Reserve (0.05) 0.44 Fair Value Reserve Investment Adjustment Reserve 0.20 Actuarial Loss Reserve 2.69 Deferred Tax Reserve 1.86 Total 249.16 253.04 Distributions General Reserve 33.94 24.99 Cash Dividends 80.56 44.34 Bonus Shares issued 0.00 66.51 Exchange Equalisation Reserve 0.57 0.14 Corporate Social Responsibility Reserve 0.11 0.56 Actuarial Loss 0.00 1.88 Regulatory Reserve 4.74 33.83 Total 119.92 172.26 Accumulated Proft/ Loss 129.35 80.78 54 MACHHAPUCHCHHRE BANK LIMITED
Bank has appropriated 20 percent of the Government of Nepal to open We would like to assure everyone that its net proft i.e. 339.4 million as General branches at designated local levels the services provided by this Bank Reserve. Similarly, appropriation where banking services are not shall continue by expanding its branch in Exchange Equalisation Reserve, available. In addition to this, the Bank network via identifcation of potentially Corporate Social Responsibility has also given priority to the expansion commercial areas in the days to come. Reserve and Regulatory Reserve of branches, branchless banking stands at 5.7 Million, 1.1 Million and 47.4 services and ATM counters in other REMITTANCE SERVICE Million. suitable locations. During the period Machhapuchche Bank has been under review, the Bank has added 45 continuing the remittance related Bank has appropriated 1 percent of branches (including the upgradation of work by signing agreements with its net proft i.e. NPR 16.9 Million for Bhimad and IBRD extension counters various domestic and foreign CSR Reserve as per the Directive of into branches) and 88 branchless remittance organizations. The Bank Nepal Rastra Bank. This fscal year, banking. has entered into agreements with Bank has planned to spend the fund in various national and international various socially responsible activities The Bank is currently serving remittance organizations like as designated by Nepal Rastra Bank. customers across the country through Western Union, Money Gram, IME, Bank’s retained earning remains a total of 136 branches, 121 branchless Prabhu Money Transfer, City Express at NPR 1.29 Billion after the fund banking and 158 ATM networks. Money Transfer, CG Remit, Xpress distributions and transfers. In addition, Lekhnath, Birtamod, Money Services, Sewa Remit, Himal Biratnagar, Sakhuwa-Mahendranagar Remit, Samsara Remit, GME, I-Pay LIQUIDITY MANAGEMENT and Janakpur branches are relocated Reliable, EZ link, Remit 2 Nepal for Due to low liquidity in the fscal year in the commercially suitable places of continuing the work of remittances. FY 2018/19, the liquidity management the same area. In the meantime, the Bank has been of the Bank remained challenging. providing remittance facility through Due to the slowdown in internal debt In order to expand the Bank’s branches its own remittance service, MBL Remit, growth and budget expenditure, there to local level in various remote areas to make the remittance transaction is low liquidity in the fnancial sector of the country, the Bank has expanded more systematic and provide all- this year. However, the asset liability its 16 branches in Bhojpur, Rautahat, accessible service. Arrangement have management committee of the Bank Jumla, Dadeldhura, Dhanusha, Mugu, been made to make direct payment has been regularly analyzing the Darchula, Achham, Jhapa, Morang, of remittance sent from Qatar, UAE, market and taking necessary deposit Saptari, Chitwan, Kaski, Khotang Saudi Arabia, Bahrain, Hong Kong, Iraq, and investment strategies and also and in remote rural municipalities Turkey, Euro Zone, Canada, UK, USA reviewing them regularly. Also, the and municipalities of Dolpa districts. and Denmark through MBL branches liquidity index for the Fiscal Year FY Similarly, 3 new branches have and 7,000 subsidiaries of MBL remit 2018/19 has been managed as per the also already come into operation in via the agreements done by the Bank criteria of Nepal Rastra Bank. Mulkharka of Okhaldhunga, Api of with various institutions at diferent Darchula and Vyas of Darchula. Apart times. The services provided by the In the review year itself, the Bank had from the three branches opened in Bank to its customers include the initiated the process of issuing 10-year remote areas, branches have been acceptance and purchase of traveler’s bonds of NPR 3 billion at 10.25 percent opened in Kuleshwor, Koteshwor and checks directly from customers issued interest rate, which has now been Maharajgunj of Kathmandu. Apart from by American Express Travel Related completed. Also, NPR 1.35 billion has this, the work of opening branches in 15 Services Company, Inc. (“AXP”), a been invested in treasury bills at an other places including DurbarMarg and multinational fnancial services provider average weighted rate of 5.09 percent Thamel in Kathmandu has also begun. based in New York, USA, as well as till mid-fscal year. The work of upgrading 2 extension collection of traveler’s cheques which counters as full branches has also are accepted by other local banks BRANCH EXPANSION been completed. Apart from this, the by signing an agreement with the TThe Bank has duly followed the process of establishing branches at 7 mentioned company. Similarly, the directive issued by Nepal Rastra places outside Kathmandu Valley has Bank has signed an agreement with Bank (NRB) regarding the policy of already started. the Korea-based Industrial Bank of ANNUAL REPORT 2018-19 55
Korea to send money directly to Nepal In addition, the Bank has been staf the Bank has been implementing from Korea. In addition, the Bank has providing its account information to the Performance Based Appraisal System. provided facilities including Online customers on a monthly basis through Payment Services / Nepal Clearing electronic statements. Human Resource is the most important House (NCHL) Inter Bank Payment requisite in order to make the Bank System (IPS). 4. The Bank has also launched an strong, competitive, efective and online account opening service with successful. It is the professional INFORMATION TECHNOLOGY the objective of providing convenient development, work efciency and In the current context, it is important banking services to customers at training provided to employees that for the Bank to increase its level of home and abroad. determine the success of the Bank. In accuracy in order to keep abreast of recognition of the same the Bank has the changes that have taken place 5. For the convenience of its always prioritized the efort related with with the rapid development of the customers, the Bank has launched enhancement of leadership, work skills technology. In this process, necessary the service by implementing the and efciency for its employees. In line training arrangements have been technology of PoS (Point of Sales). with the same the Bank is determined made to make the technical manpower to invest minimum of 3 percent of of the Bank more capable and efcient. 6. In order for the Bank to make its the operating cost as specifed by In order to reach out to the customers strategic decisions agile and efective regulatory body for the efective outside the reach of its branch ofce via MIS/ Data Analysis, the Bank has development of human resource. and to facilitate the banking process, introduced Business Intelligence During the review period 75 internal the Bank has set up a branchless Department. training of diferent units we conducted banking service based on the real time in which 1,994 trainees were facilitated, account opening procedure. In the 7. In order to operate on its conceptual similarly 133 external trainings were midst of the security challenges posed framework of digital banking the bank conducted in which 234 trainees have by the development of information has been expanding its digital payment enhanced their skills. The process of technology, the Bank has set up a services by partnering with diferent enhancing the skills and abilities of dedicated information security unit to technical service providers like F1Soft, the employees through national and implement a sound and systematic NPay, Khalti. international training and seminars will security system. continue in future as well. 8. Currently the bank is using GLOBUS- In addition, the Bank has made the T24 as its banking software where the Similarly, Bank is well aware about the following arrangements for the Bank has been upgrading the software important role that human resource expansion of information technology: and making it efcient. Further Bank play for the progress of the bank in has also been analyzing and discussing this competitive age. Further Bank 1. Mobile banking services have been regarding changing the software when is determined to appoint qualifed, upgraded twice within this Fiscal Year and where felt necessary. efcient and honest employees as well and biometric based banking has been as retain these kinds of employees streamlined. HUMAN RESOURCE working within the Bank. Timely MANAGEMENT development and management of 2. Expanding its ATM network, the Bank As of 2019, the total number of skills of human resource will be done. has been serving the customers from stafs is 1,195 where, the number of 105 ATM counters so far and has taken management level staf is 73 and the The Bank puts social security of a policy to expand this network in the number of stafs working in other level its employees at utmost priority coming days. is 1122. During the review year the Bank and guarantees implementation of has appointed 352 new stafs whereas all the plans introduced by Nepal 3. In the process of expanding 109 stafs has discontinued serving government, Labor Act, Rules and laws technology-based services to the the bank. Among the total stafs, Bank related with social security. customers, the Bank has also launched has 489 (i.e. 40.90 percent) of female Artifcial Intelligence-enabled Chat- employees. In order to motivate and NEW SERVICES bot (Maya) for the frst time in Nepal. to evaluate the work efciency of the The Bank has continued its efort for 56 MACHHAPUCHCHHRE BANK LIMITED
refnement of its services this year as can get information regarding account women entrepreneurship have well. In order to facilitate the customer balance, account details, nearest collaborated for a project with Heifer the bank has introduced the online branches, ATM’s along with details International Nepal under a project account opening service where the of savings account, credit facilities, run by Sakchyam Access to Finance customer can open account from their interest rates, fnancial literacy from the of UK Aid, where the Bank have home. With this service the people Facebook messenger 27 X 7. facilitated loan without collateral to around the world will be able to open the farmer and women entrepreneurs account with the help of internet. In addition to this, the Bank has also of Dang. Similarly, in collaboration been enhancing its quality in the with Heifer International Nepal, Bank has continued its efort to services that the bank have been the Bank have provided deprived enhance the quality of its mobile providing like Any Where Banking, sector lending project “Value Chain banking service in order to provide Internet Banking, Evening Counter, 365 Financing” at concession rate targeting additional qualitative services. Now the days Banking, VISA Debit/Credit Card. agriculture, animal husbandry, women Bank customers are able to transact Also, Bank has fully implemented entrepreneurs, small entrepreneurs through QR (Quick Response) Code C-ASBA for share transactions and through four diferent cooperative technology. This is also the indication have been providing Mero Share situated in the Lamahi Municipality that the Bank is moving towards facility. Similarly, MBL, Times Remit and of Dang District. The program is cashless banking. AMV Tel Company have entered into conducted with the aim of making tripartite agreement and started the deprived families self-employed and is With the use of M3 application, service of providing “Remitapp” mobile believed to improve the living standard customers can conveniently purchase wallet service in order to facilitate of farmer and women signifcantly. mobile recharge card/top up, make especially to Nepalese sending bill payment, pay credit card bills of remittance from abroad along with In order to make the limits of self- various banks, pay utility bills and also other general public. employment loan program efective open Fixed Deposit. Bank has also and wide as specifed by Nepal Rastra introduced Insta Pay facility in this fscal DEPRIVED SECTOR LENDING Bank, the Bank provides loan to people year where customer can purchase Directly or indirectly the Bank has been with low income to purchased and diferent home appliances, furniture providing deprived sector lending operate three wheelers for which the etc. by using credit card and pay in as per the direction of Nepal Rastra Bank has done agreement with Vivek easy installment. Similarly Bank has Bank. So far, the Bank has identifed Automobile Pvt. Ltd. for “Piaggio” brand also introduced Student Credit Card rural area branches and has especially three wheelers. As the three wheeler with an intention to bring students provided deprived sector lending. The is useful for public transportation and in banking channel and teach them Bank has directly provided deprived freight in diferent places of Nepal, the fnancial disciplines. sector loan through its branches and Bank believes that it would support for indirectly by collaborating with diferent self-employment as well. Bank has taken membership of institutions. The Bank has continued its Connect IPS of Nepal Clearing House collaboration with UK AID, Sakchyam- CORPORATE GOVERNANCE with which now the customers can Access to Finance and facilitated The Bank is fully compliant with process payment, perform interbank deprived sector with diferent prevailing laws regarding banks and fund transfer, pay bills in simple and modifed facilities like Agriculture, fnancial institutions, instructions and secure method. Mahila Udhami, Yuba tatha sana circulars issued by Nepal Rastra udhami, Sajilo Sana Udhami Loans. Bank. Corporate governance has In process of developing cutting- The Bank in collaboration with these always been in the high priority edge technology Bank has introduced institutions has also been providing and the guidelines and circulars an artifcial intelligence service with branchless banking service, fnancial on corporate governance have name “MAYA”. This service is available literacy program and micro lending in always been fully followed. In order in the Bank’s website and Facebook a simplifed way to the remote areas to make banking transaction fast, messenger where we can get the of 14 districts. Similarly Bank with the agile and scientifc and to decide on answer of queries related to services policy of investing in the sectors like other necessary strategies The Risk and facilities of the Bank. Customer small farmers, youth self-employment, Management Committee (RMC) under ANNUAL REPORT 2018-19 57
the coordination of a non-executive operations. The Board of Directors Bank and Financial Information Unit and director and Management level is responsible for reviewing the has been formulating and implementing management committee (CENMAC), bank’s internal control system and the practice. A committee has been Assets/Liability Management its efectiveness. The Board of formed under the coordination of Committee (ALCO) and other various Directors, the Audit Committee and the Director, Mr. Jaya Mukund Khanal, with committee are active. management have been efectively the main objective of formulating and reviewing the internal control system implementing necessary policies and The Risk Management Committee to maintain adequate internal control in regulations in the feld of prevention (RMC) under the coordination of a the Bank. More than 120 policies, rules of money laundering and fnancial non-executive operator to make and procedures have been formulated investment in terrorist activities. in the business of the Bank fast, agile and implemented in line with the addition, a separate AML /CFT unit and scientifc and to decide on other goal of making the internal control has been set up at the central ofce of necessary strategies. system of the bank efective and also the Bank to monitor the same policies the efectively established structural and activities and KYC / AML ofcer As efective corporate governance is framework and the corresponding has been appointed in each branch essential for the long-term success jurisdiction and delegated jurisdiction ofce to give necessary instructions of the Bank, the Board of Directors have minimized the risks in the and implement money laundering and the management have formed operation of the bank. The Board of prevention act and directives. In a separate Corporate Governance Directors has been reviewing the addition, the Bank has been operating Monitoring Unit and monitoring on a internal control system of the Bank and separate software since last year to monthly basis following the policies its efectiveness keeping in view the control asset laundering and to monitor and directives issued by Nepal Rastra market, credit, operations and other customer transactions. In this regard, Bank and other regulatory bodies. The risks and the short-term, long-term capacity building of employees and Board of Directors has complied with and future efects of such risks to the necessary training on asset laundering the directives on institutional good bank. Considering the risk that the and prevention of fnancial investment governance issued by Nepal Rastra Bank needs to bear in order to achieve in terrorist activities is being conducted Bank and other provisions related the fnancial objective, The Board of periodically for the ofcers and to institutional good governance Directors has always been committed employees of the Bank. prescribed by the prevailing law and to minimizing the short-term and long- the Board of Directors has been fully term efects of risk. For this, we have CORPORATE SOCIAL accountable to the shareholders been preparing and implementing RESPONSIBILITY of the Bank. The Board of Directors the necessary procedures for the has complied with the directives on establishment of efective internal The Bank has not only been focused corporate governance issued by Nepal control system. Such procedures on proft and has been participating in Rastra Bank and other provisions have consistently made signifcant various social activities considering its related to corporate governance contributions to risk identifcation, responsibility towards the society. In line prescribed by the prevailing law and communication, evaluation and with the Bank’s objective of spending also the Board of Directors has been management. a portion of its profts on socially fully accountable and responsive responsible activities, the Bank has been towards the shareholders of the Bank. PREVENTION OF MONEY assisting victims of natural disasters, LAUNDERING especially in the areas of education, INTERNAL In order to efectively control and health, sports, environment, etc. CONTROL SYSTEM control the activities related to money The Bank has always been committed laundering and for prevention of During the review period, in continuation to have a strong internal control fnancing in terrorist activities, the Bank of its social responsibility work, the Bank system to provide quality services has set out the necessary policies has handed over the relief materials to the customers and maximum and procedures as prescribed by the required for disaster management to the returns to the investors by minimizing Asset (Money) Laundering Prevention Nepal Police. the risks inherent in the banking Act, 2064, Asset (Money) Laundering business including credit, market and Prevention Rules, 2073, Nepal Rastra It has also provided fnancial assistance 58 MACHHAPUCHCHHRE BANK LIMITED
to Dhangadhi Sub-Metropolitant- literacy program in Dang, Rupandehi, Jan, 2019 has appointed Dr. Birendra Disaster Management Fund to assist Surkhet, Banke, Kanchanpur and Prasad Mahato and reappointed Mr. in the relief, rescue and reconstruction Dadeldhura. Gopi Krishna Neupane and Mr. Roshan work of the afected areas of KC who have completed four years Dhangadhi due to the storm of 6th Some of the major activities performed tenure in BOD as directors of the Bank. June, 2019. under corporate social responsibility in The Bank currently has following the FY 2018/19: directors in the board: The Bank in collaboration with Cancer Council Nepal has also organized APPOINTMENT OF AUDITOR Chairman Dr. Birendra Prasad Mahato public awareness programs in diferent On behalf of the Board of Directors, (On Behalf of Promoter shareholders) parts of the country. Similarly, the Bank we would like to thank the auditor has constructed a locker house with appointed from the 20th annual Director Mr. Roshan KC 510 lockers for the convenience of general meeting of the Bank, M/S (On Behalf of Promoter shareholders) the visitors/devotees of Pashupatinat G.P. Rajbahak & Company Chartered Temple and handed it over to Accountants for conducting a detailed Director Mr. Gopi Krishna Neupane Pashupati Area Development Trust audit of the Bank’s accounts and (On Behalf of Promoter shareholders) (PKBK). providing timely reports. A proposal will be made and presented in the meeting Director Mr. Jaya Mukunda Khanal Similarly, the Bank has provided as per the recommendation of the (Independent Director) drinking water tank to Mahendra Ratna Audit Committee for the appointment Multipurpose Campus in Ilam and of Auditor for current Fiscal Year. As Director Mr. Ram Man Shrestha constructed necessary infrastructure per the provisions of Section 111 (3) of (On Behalf of Public shareholders) to install the water tank. The Bank the Companies Act, 2063 (B.S.) and has completed tree planting in Section 63 (2) of the Banking and Director Mr. Bishow Prakash Gautam Lazimpat, Kathmandu and Manohara, Financial Institutions Act, 2073 (B.S.), (On Behalf of Public shareholders) Bhaktapur with the aim to contribute to the auditor can be re-appointed. environmental protection. Director Mr. Omesh Lal Shrestha BOARD OF DIRECTORS AND (On Behalf of Public shareholders) Machhapuchhre Bank has been ITS AMENDMENTS CHANGES conducting programs in coordination The Board of Directors (BODs) of The 388th meeting the Board of with the support of UK Aid Sakchyam- the Bank has a total of 7 Directors Directors of the Bank held on Jan 4th, Access to Finance in 11 districts of including 3 representing Promoter 2019 nominated Dr. Birendra Prasad Nepal where fnancial literacy is low Shareholders, 3 representing Public Mahato as the Chairman of BOD. and as per the agreement with Reanda Shareholders and 1 Independent Bizserve (in joint collaboration with Director. The 20th Annual General FINLIT Nepal) for conducting fnancial Meeting (AGM) of the Bank held on 4th
DETAILS THIS YEAR NPR LAST YEAR NPR
1. Handover of Disaster management rescue equipments to Nepal Police 5,576,026.81 2. Construction of locker house in Pashupatinath Temple premise and handed over to 3,021,775.75 Pashupati Area Development Trust (PKBK). 3. Handover of drinking water tank constructed inside campus premise to Mahendra Ratna 968,659.27 MultiPurpose Campus, Ilam 4. Conducted Financial Literacy Program in collaboration with Cancer Council Nepal 250,000.00 5. Handover of Cheque to the Dhangadhi Sub-Metropolitan -Disaster Management Fund to 151,111.00 assist in the relief, rescue and reconstruction of areas of Dhangadi afected by storm of 6th June, 2019 6 Placement of pots and plantation done in the electricity poll situated around the Head Ofce 140,000.00 of Machhapuchchhre Bank Limited, KMC ward No. - 2 ANNUAL REPORT 2018-19 59
BOARD OF DIRECTORS AUDIT COMMITTEE and inform the Board accordingly; to MEETINGS Under the coordination of Non- assist the Management team in making Meeting of the Board of Directors Executive Director, there is a three the Annual Financial Information of of the bank in accordance with the member Audit Committee for the the Bank accurate and realistic and to provisions of the existing Act, is Bank to review the fnancial condition provide necessary recommendations/ conducted regularly. A total of 25 of the bank, accounting, budget and feedbacks to the Board regarding meetings of the Board of Director have internal audit procedures, monitor and Bank’s actions. Likewise, the internal and been held during the review period. supervise- whether the internal control external auditors of the bank can have The Chief Executive Ofcer of the bank system is appropriate or not, and if direct access to the committee. has been invited in the meeting of appropriate, is implemented on not, BODs. The attendance of the directors to regularly examine managerial and STAFF SERVICE AND in the meeting of the BODs and the performance outcome of Management FACILITIES COMMITTEE details of allowances received are as and Operation of the Bank for ensuring Banking business is service oriented as follows: that the prevailing laws applicable well as systematic risk taking business. to the Bank are fully complied with; Therefore, for providing excellent The board of directors has been to review the outcomes of the audit service and proper risk management, making appropriate decisions to make and audit plan, and the remarks in the competent and professional manpower the bank more successful and strong Audit Report submitted by Internal is required. As competent manpower by seriously discussing all the areas and External auditors, and direct the is a strong foundation of the bank, in that the Bank needs to pay attention Management of the Bank to apply order to attract qualifed workforce, it is to, including the condition of the Banks corrective measures; to review if the necessary to continuously review and Capital Fund, Policy arrangement, direction/remarks pointed out upon adjust the management principles for Corporate Governance, Loan, inspection and supervision by NRB the efective operation of the banking Operation and Market Risk. BODs has have been implemented or not, and to business and efective workforce been reviewing the decisions taken in maintain the record of such subjects management. the previous meeting and the status of implementation of that decision NAME TITLE/POSITION in each meeting. In addition, the 1. Director Mr. Gopi Krishna Neupane Coordinator implementation status of the decisions 2. Director Mr. Omesh Lal Shrestha Member taken by the Board in the previous 3. Internal Auditor Mr. Khagendra Paudel Member secretary quarter is also reviewed on quarterly basis. The decisions made by the Internal Committees of the bank also NAME TITLE/POSITION have been presented in the meeting 1. Director-Mr. Jaya Mukunda Khanal Coordinator of the Board and necessary decisions 2. Director-Mr. Roshan KC Member have been taken. The Board of 3. Chief Executive Ofcer-Mr. Suman Sharma Member Directors keeping in mind the interest 4. Chief Financial Ofcer-Mr. Suvash Jamarkattel Member of the Bank, is always committed to 5. Deputy Chief Human Resource Department- Ms. Richa Pandey Member Secretary fulfll its role in the coming days as well.
The bank has the following fve MEMBERS NUMBER OF MEETINGS ALLOWANCES MEETINGS ATTENDED (IN NPR) member Staf Services and Facilities committee under the coordination of Chairman Dr. Birendra Prasad Mahato * 12 163,000 the Non-Executive Director. Director Mr. Roshan KC 24 252,000 Director Mr. Gopi Krishana Neupane 25 236,000 The main objective of the Staf Director Mr. Jaya Mukunda Khanal 25 236,000 Director Mr Ram Man Shrestha 24 228,000 Services and Facilities Committee is to Director Mr Bishow Prakash Gautam 25 236,000 prepare the policy and criteria related Director Mr. Omesh Lal Shrestha 22 204,000 to the Workforce Management of the Bank and submit it to the Board of *Chairman Dr. Birendra Prasad Mahato has been on BOD only since the 20th annual general meeting held on Jan 4th, 2019. Directors; to present all the decisions 60 MACHHAPUCHCHHRE BANK LIMITED
of the committee and works based on formed with the primary objective to INFORMATION its decisions on periodic intervals to the prepare and implement necessary MANAGEMENT Board. policy/guidelines on Asset (Money) Bank has given utmost priority to Laundering Prevention and areas of information exchange among all RISK MANAGEMENT terrorist fnancing: shareholders and stake holders. In this COMMITTEE The main objective of this committee NAME TITLE/POSITION is to identify, monitor and manage 1. Director Mr. Omesh Lal Shrestha Coordinator various inherent risks of the Bank 2. Director Mr. Gopi Krishna Neupane Member and risks that may arise in the future 3. Director Mr. Jaya Mukunda Khanal Member (credit, market operation, etc.) and 4. Chief Risk Management Ofcer- Mr. Bishwambhar Neupane Member submit report to the Board of Directors 5. AML/CFT unit Implementation Ofcer Mr. Dilli Ram Giri Member Secretary abiding by the functions, duties and responsibilities assigned to this Bank has been complying with Committee by the Unifed Directives the Acts and Directives on Money regard, Bank has been disseminating of Nepal Rastra Bank. Vis-à-vis Laundering Prevention, which is why information such as Annual Reports, give necessary suggestions to the a separate AML/CFT unit has been Quarterly Reports, Progress Reports Management of the Bank. In regards set up at the Head ofce of the Bank of other banks, and diferent services to the above, there is a four-member to monitor the necessary policies and provided by the Bank, through various risk management committee in actions in the areas of prevention media and the Bank’s website www. coordination of Non- Executive board of Money laundering and Financial machbank.com. as below: investment in terrorist activities, and a As the Annual General Meeting is a suitable and important place to draw NAME TITLE/POSITION appropriate conclusions from inquiries 1. Director Mr. Bishow Prakash Gautam Coordinator raised by investors and individuals from 2. Director Mr. Gopi Krishna Neupane Member time to time, we have encouraged all 3. Deputy Chief Operation Ofcer Mr. Madhav subedi Member shareholders to attend the meeting 4. Chief Risk Management Ofcer Mr. Bishwambhar Neupane Member secretary and discuss the progress of the Bank
GRIEVANCE AND HEARING KYC/AML ofcer has been nominated COMMITTEE ON ANTI The Bank has set up a separate in each of the branch ofces and MONEY LAUNDERING desk and appointed a grievance necessary instructions for the same AND PREVENTION OF handling ofcer to hear the grievances have been given. FINANCIAL INVESTMENT IN of public and customers for any TERRORIST ACTIVITIES inconvenience caused. The Bank has OTHER COMMITTEES set up a toll free number for hearing In addition to the above mentioned The Bank has been fully abiding the customer grievances and integrated committee formed under the Asset (Money) Laundering Prevention an online portal on its website for Directives of NRB and Bank and Act, 2064 BS, related Rules and hearing complaints and disseminating Financial Institutions Act, if required, Guidelines and directives issued information to the public. In the fscal Board of Directors for specifc purpose, by the Nepal Rastra Bank related year 2018/19, out of 116 complaints all time & work, under the coordination to prevention/control of Money 116 have been heard and addressed. Laundering. The Bank has formulated of Non- Executive Director has been and implemented efective Policies, forming other committees/sub- MERGER AND ACQUISITION committees such as Merger and Rules and Directives to prevent Money As per the decision made in the Acquisition Committee, Information Laundering. The following fve member previous Annual General Meeting Technology Committee. committee under the coordination on Merger and Acquisition, a Merger of Non- Executive Director is ANNUAL REPORT 2018-19 61
and Acquisition committee formed business in a cordial atmosphere Ltd and all our other supportive by the Board of Directors of the bank by constantly believing in this Bank. bodies and personnel who have been under the coordination of Mr. Roshan Acknowledging the active support that providing direct or indirect support to KC have given continuity to carry out the bank has been receiving from its the Bank. We are confdent that we will tasks such as discussing in details the valued customers, we are determined continue to receive your support in the policies, rules and directives related to provide more quality service to our future as well. to Merger and Acquisitions, having customers in the days to come. Due an unofcial discussion with diferent to the direct & indirect support, advice, Last but not the least, I would like to Banks that are seen appropriate for suggestions, decisions and guidance express my special thanks to all the Merger and Acquisition with the Bank extended by the shareholders of the employees who are continuously and discussing further with them the bank, the bank has become strong, working for the interest of the bank business prospects, branch expansion, superior and expanded as of day. The and are actively engaged to provide quality of assets and on other relevant Board extends its gratitude for the service, for their hard work and topics. goodwill and trust shown towards dedication to the customers. We would the Bank by its shareholders. We also like to take this opportunity to CAPITAL INCREMENT PLAN also are committed to carry out the thank the External Auditor and the all The total paid up capital of the bank till deepest responsibility entrusted to us our well-wishers. Mid July, 2019 is NPR 8,055,693,000. by our esteemed shareholders with The bank plans to increase its capital full dignity and decency. We would Finally, you have set aside your time for as per its fve-year strategic plan. As also like to express our gratitude for this meeting even during this festive per the capital increment plan of the the continued support and inspiration season and accepted our invitation, for bank, Debenture worth NPR 3 billion from our shareholder and expect the which I am extremely grateful. I would has been issued and a proposal has same trust and goodwill to continue in like to extend my best wishes for Bada been tabled at the Annual General future. We assure you that we are fully Dashain and Dipawali and Chhath to Meeting to increase the paid up committed to the overall development you all. capital by issuing 5 percent of paid up of the Bank. capital as Bonus Share. In addition to that, Bank has continued to carry out We would like to express our sincere discussion on the possibility of merger gratitude to respected shareholder and Thank you. and acquisition with other suitable regulatory bodies who have always banks and fnancial institutions for been a guardian fgure to us and On behalf of Board of Directors, increasing its capital and business. provided guidance and support for the continuous progress and prosperity of Dr. Birendra Prasad Mahato NOTE OF THANKS the Bank, Government of Nepal, Nepal Chairman We would like to express our Rastra Bank, Securities Board of Nepal, sincere gratitude to all our esteemed Ofce of the Company Registrar, Nepal October 11, 2019. customers who have been doing Stock Exchange Ltd., CDS and Clearing 62 MACHHAPUCHCHHRE BANK LIMITED
RISK MANAGEMENT
The risk management function in the Bank strives to The long-term financial proactively anticipate vulnerabilities at the transaction security and success of the as well as at the portfolio level, through quantitative or Bank is built on its robust qualitative examination of the embedded risks. risk management system. The Board of the Bank is primarily responsible for setting out the risk policies, risk As a financial intermediary, strategy, risk appetite, risk tolerance, risk the Bank is exposed to mitigation etc. Such risk measures are communicated by the Board down various risks, primarily Credit, the line for efective and timely Operational, Market, Liquidity implementation and adherence. The Board of the Bank also monitors and other risks inherent and evaluates the risks on a in bank. An independent regular interval and instructs RMC and other related departments, risk management function who are responsible for risk ensures that the risk is management, of the Bank through CEO/CRO for its managed through a risk efective implementation. management architecture as In a broad sense, the Bank’s well as through policies and functional structure for risk related matters are presented processes approved by the in the following diagrammatic Board of Directors. exhibits: ANNUAL REPORT 2018-19 63 64 MACHHAPUCHCHHRE BANK LIMITED
any change in business activities. An monitoring and control over risks being RISK efective risk management framework taken. The individuals/departments MANAGEMENT includes: responsible for control function (Risk FRAMEWORK Departments, internal audit, compliance a) Clearly defned risk management etc) are independent from business policies and procedures covering units and report directly to board and A risk management framework risk identifcation, acceptance, committees. encompasses the scope of risks to be measurement, monitoring, reporting and managed, the process/systems and control. c) The framework should have a procedures to manage risk and the mechanism to ensure an ongoing roles and responsibilities of individuals b) A well constituted organizational review of systems, policies and involved in risk management. The structure defning clearly roles and procedures for risk management and framework is comprehensive enough responsibilities of individuals involved procedure to adopt changes. to capture all risks a bank is exposed in risk taking as well as managing it. The to and have fexibility to accommodate structure is such that it ensures efective
THE BOARD
CEO RISK MANAGEMENT COMMITTEE (RMC)
ASSETS LIABILITY COMMITTEE CRO
CRM COMMITTEE ORM COMMITTEE
CRM ORM LIQUIDITY & MARKET IT RISK DEPARTMENT DEPARTMENT DEPARTMENT DEPARTMENT ANNUAL REPORT 2018-19 65
of the Bank, Strategies developed targets. Role of CRO in managing risk is RISK for Credit Risk Management etc. and an independent function. CRO should MANAGEMENT recommend the Board for necessary also be vigilant about ever changing COMMITTEE update and improvement. risk profle of the bank in the dynamic environment and accordingly propose n Update/ recommend the Board for approval of adequate mitigation RMC is one of the important sub- after discussing and analysing the tools without hampering acceptable committee of the Board, which plays Capital Adequacy based on Risk business activities of the bank in terms a pivotal role in managing overall risk Assets, Internal Capital Adequacy of risk tolerance and implement the management of the Bank. RMC works Assessment Process (ICAAP), Stress same after approval. Ideally, three as a bridge between the Board and testing, adequacy of the existing separate departments/units related to CRO/Management for implementation Policies with regard to the Business Credit Risk, Operation Risk and Market/ of risk strategies and escalate important Strategy and the Bank’s Credit Risk Liquidity Risk functions are directly risk matters to Board that are originated Tolerance. reporting to CRO. from Management. RMC at present comprises of 4 members: 2 from n Reviews the stress testing carried The roles and responsibilities of Chief the Board of Directors or as may be out on a regular basis and discuss Risk Ofcer is as follows: decided by the Board of the Bank on its results. On the basis of result from time to time, and 2 from the of stress testing, the Committee n The Chief Risk Ofcer shall primarily management team. ofers suggestions to the Board for be responsible for overseeing the appropriate polices and decision development and implementation of Board Member-Coordinator making. the Bank’s risk management function. Board Member-Member Chief Risk Ofcer-Member Secretary n RMC oversee the escalated Credit, n The Chief Risk Ofcer shall be DGM-Operation-Member Market, Liquidity and Operation responsible for supporting the Board Risk. Similarly, the committee also in its development of the Bank’s risk RMC examines Credit Risk, Market Risk, oversee the position of NPA/NBA/ appetite and Risk Appetite Statement Liquidity Risk, Operation Risk and IT Risk LLP, sectorial portfolio/portfolio and for translating the risk appetite at periodic interval. diversifcation, ALCO report/minute, into a risk limits structure. liquidity profle and many other Some of the major responsibilities of indicators of the bank and provides n The Chief Risk Ofcer, together the RMC, but not limited to, with regard advice to the management whenever with management, shall be actively to risk management includes: necessary. engaged in the process of setting risk measures and limits for the various n Apprise the Board on Adequacy n Recommends the Board on any business lines and monitoring their and Appropriateness of current possible signifcant impact on the performance relative to risk-taking Credit Risk identifcation & Credit Bank’s Financial Position arising from and limit adherence. Risk Management System of the any problem/change in the economy. Bank and make suggestions and The Committee also suggests n The Chief Risk Ofcer’s recommendations, as deemed mitigating factors, to minimize the responsibilities shall also include appropriate, to the Board, for impact of such problems/changes. managing and participating in key improving and strengthening existing decision-making processes (e.g. Credit Risk Management System of strategic planning, capital and the Bank. CHIEF RISK liquidity planning, new products and OFFICER (CRO) services, compensation design and n Apprise and update the Board on operation) existing Risk Management Process CRO has important role to play in order and Procedural Guidelines, on the to mitigate potential risk inherent in the n The Chief Risk Ofcer shall efectively level of Risk prevalent in its Business, Bank’s business. CRO directly reports to implement/cause to implement Operation and about Risk Appetite RMC and does not have any business all the directions/suggestions 66 MACHHAPUCHCHHRE BANK LIMITED
(pertaining to his area of work) of relating to their respective areas of THIRD LINES OF DEFENSE the Board and Risk Management responsibilities, and ensuring that our The Bank’s Internal Audit function Committee. operations remain within approved independently reviews activities of boundaries of our risk appetite and the frst two lines of defense based n The Chief Risk Ofcer shall ensure the policies. on a risk-based audit plan and establishment, robust implementation methodology approved by the Audit and strengthening the system of MBL has an established incident Committee of the Board. Internal Audit Internal Control, Credit/Operation/ notifcation protocol that sets out provides independent assurance to Market Risk Management System processes for the escalation of the Board, the Audit Committee, senior and Corporate Governance across all incidents according to the level of management and regulators regarding levels, functions and activities of the severity. In this way, appropriate levels the efectiveness of the Bank’s Bank. of management are made aware of governance and controls design for risk such incidents and can take action mitigation framework. THREE LINES OF accordingly. RISK EXPOSURE DEFENSE SECOND LINES OF DEFENSE MBL’s independent oversight functions AND BUSINESS MBL’s risk management philosophy of such as Risk Management Department, SEGMENTS the bank is guided by the Three Lines Legal and Compliance form the second of Defense Principle. When it comes to line of defense. They are responsible The chart below provides an overview risk taking, each line of defense has a for the development and maintenance of the risks arising from our business clear responsibility. of risk management policies and segments. The asset size of each processes and they provide objective business segment refects its FIRST LINES OF DEFENSE review and challenge on the activities contribution to the balance sheet, and Each business segments are MBL’s frst undertaken by business segments. the risk-weighted assets (RWA) ofer a line of defense. Their responsibilities These units also suggest appropriate risk-adjusted perspective. include the identifcation and mitigation on risk taker. management of risks arising from and
BOARD, CEO & SR. MGT PROVIDES OVERSIGHT OF THE THREE LINES OF DEFENSE FIRST LINE OF DEFENSE SECOND LINE OF DEFENSE THIRD LINE OF DEFENSE Role Own and manage risks in Provide independent risk oversight, Provide independent assurance respective areas of responsibility monitoring and reporting Unit Business Segments Risk Management, Legal & Internal Audit Compliance ANNUAL REPORT 2018-19 67
1. CREDIT RISK
Credit Risk is the risk of loss of principal or loss of a fnancial reward stemming from a borrower’s failure to repay a loan or otherwise meet a contractual obligation. Credit risk is managed through a framework that sets out policies and procedures covering the measurement and management of credit risk. The Bank has a robust Credit Risk Management (CRM) Department at the central level; CRM identifes and manages Bank’s credit exposures following the principle of diversifcation across products, geographies, and client and customer segments.
Nepal Rastra Bank, as the Central Credit Bank of the country, has laid signifcant Risk emphasis on the adequacy of a Bank’s Management management of risk. Overall risk is a discipline management is of utmost importance at the core of every to Banks, and as such, policies and fnancial institution and procedures should be endorsed encompasses all the activities that Risk management, as commonly and strictly enforced by the senior afect its risk profle. It involves perceived, does not only mean management and the Board of the identifcation, measurement, monitoring minimizing risk; rather the goal of risk Bank.In the dynamic environment and controlling risks to ensure that; management is to optimize risk-reward the risk also changes. An enterprise, trade-of. Notwithstanding the fact that segment or an industry are infuenced a. The individuals who take or manage banks are in the business of taking by so many internal and external risks clearly understand it. risk, it should be recognized that an factors that the risk keep on changing institution need not engage in business which is why credit risks have to be b. The Bank’s risk exposure is within the in a manner that unnecessarily imposes evaluated on an ongoing basis. Credit limits established by Board of Directors. risk upon it: nor it should absorb risk is tied up with the potential return risk that can be transferred to other on an investment, so as the quantum c. Risk taking decisions are in line with participants. Rather it should accept of risk rises so has to be the pricing, the business strategy and objectives those risks that are uniquely part of the having said that pricing alone might set by BOD. array of bank’s services. not be the exhaustive measure / mitigation of credit risk. Portfolio as d. The expected payofs compensate Credit Risk Management Department a whole, its performance, individual for the risks taken. is assigned the responsibility to capacity, net-worth, market trend etc. undertake actions related to credit risk also plays infuential role on pricing e. Risk taking decisions are explicit and management of the Bank. The Bank determination. The goal of credit risk clear. has formulated and implemented a management is to maximize Bank’s risk‐ Credit Risk Management Policy to adjusted rate of return by maintaining f. Sufcient capital as a bufer is provide guidelines and direction for credit risk exposure within acceptable available to take risk, etc. credit risk management. parameters. 68 MACHHAPUCHCHHRE BANK LIMITED
1.1 Credit Risk independent function of the Bank, through statistical models and data Management at MBL which does not have any business analysis in portfolio level. targets; rather its objective is to MBL’s approach to credit risk reduce level of NPL, and delinquent INTERNAL RISK GRADING management comprises the following borrowers and to improve risk assets building blocks: quality of the Bank besides improving The assignment of credit risk ratings service standard. CRM of the MBL is and setting of lending limits are integral A. Credit Risk Governance a centralized function, which controls parts of MBL credit risk management B. Policies overall risk inherent in the lending process, and we use a rating model for C. Risk Methodologies portfolio. It may support or decline all customers. D. Processes, systems and reports the credit proposal based on the risk inherent in the business and Bank is in processing of linking those A. CREDIT RISK the industry. It reports to Chief Risk ratings with pricing i.e. risk based pricing GOVERNANCE Ofcer (CRO). The responsibility of and capital allotment also. Individual CRM Department shall be credit risk credit proposals are classifed from Low Risk Governance structure of MBL management for the lending activities risk range to High risk range as below comprises of the following: of the Bank. The Department identifes according to the scores attained by and point out the underlying risks in the individual borrower. Review frequency, Board credit proposal on ongoing basis and acceptability of proposal and pricing are Risk Management Committee suggest appropriate mitigation, as and also substantiated with those scores. where applicable. Credit Risk Management Committee (CRMC) A: Low Risk B. CREDIT RISK POLICIES B: Minimal Risk Chief Risk Credit Risk Ofcer (CRO) Management C: Moderate Risk Department The dimensions of credit risk and the D: Better than Average Risk scope of its application are defned in E: Average Risk CREDIT RISK MANAGEMENT the Credit Risk Management Guidelines F: Acceptable Risk COMMITTEE (CRMC) (RMG) of MBL. Risk function of MBL G: High Risk sets the guidelines and approved
CRMC is a management level risk by Board of the bank through Head Considering dynamics in risk management committee formulated in risk, CRO, CEO, RMC and Board. RMG environment i.e. internal as well as order to ensure that risk portfolios are is supplemented by a number of external, bank in regular interval, understood, analyzed and addressed operational standards and guidelines, reviews those rating parameters and in a timely manner. CRMC comprises ensure consistency in identifying, incorporate required changes wherever of the CRO as coordinator, DGM assessing, underwriting, measuring, required. Business, Head treasury (back end), reporting and controlling credit risk Head of Special assets management across MBL, and provide guidance in ENVIRONMENTAL AND SOCIAL department, Head of Credit risk the formulation of business-specifc RISK MANAGEMENT (ESRM) management department & Head and/ or location-specifc credit risk of credit sales. There could be other policies and standards. Responsible fnancing, covering invitees in the Committee as per the environmental & social risk (ESR) issues, requirement. The committee meet at C. CREDIT RISK is a topic of increasing importance least every quarter to discuss various METHODOLOGIES to societal constituents, and one that aspects of risk management. afects investing and lending decisions Credit risk is managed by thoroughly across the bank. MBL recognizes CREDIT RISK MANAGEMENT understanding our customers – the that, our fnancing practices have a (CRM) DEPARTMENT businesses they are in, their repayment substantial impact on society as well capacity as well as the economies as environment and failure of our MBL has separate department in which they operate in individual customers to appropriately manage called CRM department which is an borrower level,it is also managed ES risk issues can directly impact their ANNUAL REPORT 2018-19 69
operations and long-term economic CREDIT RISK TOLERANCE/ large exposure in a particular industry. viability, and the communities and CONCENTRATION RISK The risk profle is forwarded to the Chief environment in which they operate. Executive Ofcer for review originated Our risk management processes, which from CRM Department through the Further regulator has already are aligned with our Risk Appetite, line manager; the available documents directed to formulate and implement ensure that an acceptable level of risk shall be referred by Business Unit prior policy to manage those risk. In diversifcation is maintained across MBL. to processing of any credit facilities line with the above, MBL has Thresholds are set on major industry related to such sector. already devised Environmental & groups, nature of facility, product, single Social Risk Management Policy to counterparty exposures as well as of TRAINING & CAPACITY integrate Environmental & Social balance sheet items are established. DEVELOPMENT Risk Management into overall credit Governance processes are in place to risk management process. The ensure that our exposures are regularly MBL perceives the importance of requirements of this policy represent monitored with these thresholds in a strong risk culture, which refers the minimum standards for MBL and mind, and appropriate actions are taken to our shared attitudes, values and we have also sought alignment with when the thresholds are breached. standards that shape behaviors related Regulatory standards and, where MBL continually examines how we can to risk awareness, risk taking and possible, with best practices across enhance thescope of our thresholds risk management. All our people are the industry. Where signifcant ES to improve the management of responsible for the management of risk, risk issues are identifed, escalation is concentration risk. with the ultimate accountability residing required to higher authority. Further with the Board. In order to develop such fndings are also communicated INDUSTRY PROFILING the organization wide risk culture to credit approving authority before and develop common understanding approval. Overall ES Risk process is The CRM Department of MBL between risk function and business depicted as below: periodically examine the risk profle function, risk department periodically based on industry wide risk as defned conducts interaction, training & capacity by the Bank and priority is given to the development programs to bank’s stafs.
PROCEDURE
Evaluating E & S Risk Monitoring E & S Risk
Environment Transaction Reviewing Clients ES Performance E&S & Social Risk Reporting Management Risk Categorization Managing Non Compliance policy ES Due Dilligence
Condition & Monitoring 70 MACHHAPUCHCHHRE BANK LIMITED
D. PROCESSES, SYSTEMS & driven either by regulators or internal covering overall risks inherent in REPORTS requirements and management. Our those portfolios. Maintenance of risk credit stress tests are performed at the register and related reporting is done MBL constantly invests in systems to total portfolio or sub-portfolio level, according to the guidelines formulated support risk monitoring and reporting and are generally performed to assess regarding the same. Each risk events for our business processes.The end-to- the impact of changing economic are assessed as Low, Medium or High end credit process is continually being conditions on asset quality, earnings considering Likelihood of the event & reviewed and improved through various performance, capital adequacy and Severity of consequences. front-to-back initiatives involving liquidity. MBL’ stress testing programme business, operations, risk management is comprehensive and covers all major 1.1 Credit Risk Mitigation and other key stakeholders. Day-to- functions and areas of business. day monitoring of credit exposures, Potential credit losses from any given portfolio performance and external RISK REGISTER account, customer or portfolio are environmental factors potentially mitigated using a range of tools such afecting credit risk profles is key to A Risk Register is a tool for as collateral, portfolio diversiftation our philosophy of efective credit risk documenting identifed credit risks, risk transfer through credit insurance management. Credit trends, which may analyze & quantify the severance of and other guarantees. MBL carefully include industry analysis, early warning impact, formulate appropriate risk assesses reliance that can be placed on alerts and signifcant weak credits, are mitigation measures, assign risk owners these mitigants in light of issues such submitted to the risk committees as and calculate residual risk in case risk as legal certainty and enforceability, well as senior management, allowing are not completely mitigated/avoided. market standing and counterparty risk key strategies and action plans to be of the guarantor etc.Although the credit formulated and evaluated. n Identifcation & Root Cause Analysis risk cannot be brought down to zero, n Determining Risk Ownership the same can be managed through CREDIT STRESS TESTING n Risk Mitigation measures appropriate mitigating tools.Major risk n Calculating residual risk that MBL faces in current scenario and MBL engages in various types of mitigation measures being opted has credit stress testing, and these are MBL Maintains Comprehensive been detailed as below: portfolio wise Credit Risk Register
SPECIFIC RISK SHORT DESCRIPTION RISK MITIGATION TECHNIQUES OPTED BY MBL AND SOURCE IMPACTS
Default Risk Borrower’s failure to repay Severe MBL Mitigates risk of Default opting followingMeasures (list is not debt. The risk arises from exhaustive): fund diversion, cash crunch, n Existing and projected cash fow & fnancial analysis, wrong product and over n fnancing, borrower’s willful Analysis & Purpose Assessment, nonpayment etc. n Market/industry review, n Obtaining Appropriate level/Additional real estate collateral to mitigate credit risk exposures, though it must not be considered as an alternate for the source of repayment, n The inspection and site visit of the business / collateral must be conducted in a frequent interval as prescribed, to ensure that the unit is a going concern and the fund is being used for purpose stipulated, n Identifcation and analysis of early warning signals, borrower wise as well as industry wise to take timely remedial action as required, n Assessment & implementing Credit Structuring strategy or other remedial action wherever required etc. ANNUAL REPORT 2018-19 71
SPECIFIC RISK SHORT DESCRIPTION RISK MITIGATION TECHNIQUES OPTED BY MBL AND SOURCE IMPACTS
Recovery Risk The risk arises from Severe MBL Mitigates risk of recovery opting following measure (list is not Client’s business failure, exhaustive): Death or departure of key n Valuation of property accepted as collateral from authorized valu- management people, Double ator only. Further revaluation is required to be done by alternate fnancing against same asset, valuator other than last valuator, Decline in Collateral Value, n Repossession of Collateral Legal opinions and verifed documentation are obtained where and Owner’s Financial there are doubts on the enforceability and marketability of the Capability. collateral, n Strong internal mechanism for verifcation of security including requirement of regular site visit, n Obtaining Personal guaranteewith substantiation of net worth details, where the Personal Guarantee is taken; net worth state- ment of the guarantor has to be taken on best efort basis. n Ensuring the insurable assets fnanced by the bank remain in- sured at all times.
Concentration Loss triggered by loss in Medium MBL Mitigates risk of recovery opting following measure (list is not Risk a heavilyconcentrated exhaustive): individual concern / n Maintaining portfolio ceiling on RA concentrationin particular group / product / region / Product/sector/industry/nature/single borrower/within specifc businesssegment. The risk rating of loan, arises from macroimpact n on particular industry, Fully complying with NRB directives regarding concentration risk macroimpact on particular n Stress testing and analysis of correlation within various seg- product, macro impact on ments/industries. particular region andname / group concentration
External Risk External risk may arise due Severe External risk generally arises from the events/incident which could to pandemic situation like not be controlled by bank. Bank shall opt appropriate measures outbreak of corona virus, to cope with impact of such events/situations. Risk department of climate change, political MBL regularly assess credit risk that may arise from such external instability etc. sources and suggest for appropriate measures to lower the impact of such incidents/events. 72 MACHHAPUCHCHHRE BANK LIMITED
MOVEMENT IN KEY RISK PARAMETERS
MOVEMENT IN NPA (in Percentage) MOVEMENT IN TOTAL CAPITAL / RWA (CAR) (in Percentage)
16.82 0.44 15.36
0.38 0.37 12.79
0.37% 12.79% Ashad Ashad Ashad Ashad Ashad Ashad 2074 2075 2076 2074 2075 2076
INDUSTRYWISE CONCENTRATION OF RA
24.7% 16.6% 24% 17.37%
3.07% 2.73% 4.25% 3.08%
4.4% 4.9% 4.5% 4.7%
14% 5.5% 17.7% 5.4%
7.53% 6.1% 10.33% 9.1% 8.22% 7.6%
Ashad 2076 Chaitra 2076
n Others n Transport, Communication & Public Utilities n Consumptions Loans n Agricultiral & Forest Related n Electricity, Gas & Water n Agriculture, Forestry & Beverage Production Related n Others Related n construction n Finance, Insurance & Real Estate n Non Food Production Related n Wholesaler and Retailer ANNUAL REPORT 2018-19 73
2. OPERATIONAL RISK future changes and threats, and approach for managing operational concur on areas of highest priority risk in a structured, systematic Operational risk is the risk of loss and related mitigation strategy. and consistent manner. The policy resulting from inadequate or failed establishes a process to ensure that internal processes, people, systems, The RMC at the apex level is any new or changed activity will be or from external events. It is inherent the policy making body and is evaluated for operational risk prior to in the Bank’s day-to-day business supported by the Operational Risk come into efect. The management activities.MBLs’ objective is to Management Committee (ORMC), ensures that it is communicated and manage and control operational risk responsible for the implementation understood throughout the bank. in a cost-efective manner within of the Operational Risk framework The policy is regularly reviewed targeted levels as defned in the risk of the Bank and the management of and updated, to ensure it continue appetite. operational risks across the Bank. to refect the environment within which the bank operates.The key MBL’s approach to operation OPERATIONAL RISK policies address risk areas relating risk management comprises the MANAGEMENT DEPARTMENT to compliance, fraud (internal following building blocks: or external), money laundering, MBL has separate independent damage to physical assets, clients, A. Operation Risk Governance function called Operational products & business practices, B. Policies Risk Management Department business disruptions & system C. Risk Methodologies established for efective failures, employment practices and D. Processes, systems and reports management of operational risks in workplace safety. the bank. The Department performs A. OPERATION RISK the jobs related to identify, measure, C. OPERATION RISK GOVERNANCE monitor and report operational METHODOLOGIES risks as a whole and ensure that Risk Governance structure of MBL the management of operational The Bank has a strong internal comprises of the following: risk in the bank is carried out as per control system so that material strategy and policy. It evaluates the fraud and errors can be easily Board adequacy of tools and techniques traced. Further, the Bank follows a Risk Management Committee to reduce the operational risk scientifc process for segregation to acceptable level. It helps to of duty so that internal check be Operation Risk Management Committee (ORMC) establish policies and standards and maintained. The Bank follows the coordinate various risk management operational manual approved by Chief Risk Operation Risk Ofcer (CRO) Management activities. Besides, it should also Board of Directors. The Bank has an Department provide guidance relating to various efective Internal Audit Department risk management tools, monitors which functions to carry out review OPERATION RISK and handle incidents and prepare of internal control system of the MANAGEMENT COMMITTEE reports for management and BOD. bank and ensure that the approved (ORMC) policies, procedures and manuals B. OPERATION RISK are strictly followed. The report of the Internal Audit Department ORMC is a management level risk POLICIES is directly submitted to Audit management committee consisting committee headed by a non- of Senior Management of the Bank The Bank has implemented a robust executive director. for implementation and monitoring and comprehensive Operational of the Operational Risk Framework Risk Framework defned as part of throughout the Bank. The the Board-approved Operational Additional methodologies are in Committee is also responsible for Risk Policy to identify, assess and place to address subject-specifc reviewing Operational Risk profles monitor risks, strengthen controls risks, including, but not limited to, of the business units, understand and minimize Operational Risk the following: losses. The Policy sets our overall 74 MACHHAPUCHCHHRE BANK LIMITED
REPUTATIONAL RISK with one or more of its stakeholders n Report and/ or escalate key resulting in loss of business, and/or operational risks to risk committees Reputational risk is the risk of disproportionate decrease in the value with recommendations on possible damage to the Bank’s of a banking bank. appropriate risk mitigation strategies brand and reputation resulting in loss of earnings or adverse impact CONTINGENCY PLANNING 3. MARKET AND on market capitalization or could be LIQUIDITY RISK perceived as by the stakeholders MBL have disaster recovery and to be inappropriate, unethical, business continuity plans to ensure its Market Risk is the risk that earnings or or inconsistent with bank values ability to operate as a going concern capital will be adversely afected by and beliefs. The Bank’s Corporate and minimize losses in the event changes in market variables such as Governance Policy establishes the of severe business disruption. The interest rates, foreign exchange rates, framework for the governance and business disruption and contingency volatilities, credit spreads, commodity management of reputational risk. plans should take into account and equity prices. The risk may pertain The framework aims to protect the diferent types of scenarios to which to interest rate related instruments Bank’s reputation and restrict the the bank may be vulnerable and (interest rate risk), equities (equity price ability to undertake any activities that should be commensurate with the risk) and foreign exchange rate risk may cause material damage to the size and complexity of its operations. (currency risk). Bank’s branding. The bank has clearly Management should identify critical set the code of conduct / code of business processes, including those Liquidity is a bank’s capacity to ethics which defnes acceptable and where there is dependence on external fund increase in assets and meet unacceptable behaviors and explicitly vendors or other third parties, for which both expected and unexpected disallow behavior that could lead rapid resumption of service would be cash and collateral obligations at a to any reputation risks or improper most essential. reasonable cost and without incurring or illegal activity, such as fnancial unacceptable losses. Liquidity risk is misreporting, money laundering, fraud, D. PROCESS, SYSTEMS the inability of a bank to meet such anti-competitive practices, bribery and AND REPORTS obligations as they become due, corruption, or the violation of consumer without adversely afecting the bank’s rights and make clear that employees Robust internal control processes and fnancial condition. are expected to conduct themselves systems are integral to identifying, ethically in addition to complying with assessing, monitoring, managing and The obligations could be both ‘On’ and laws, regulations and company policies reporting operational risk. ‘Of’ balance sheet. By the inherent nature of its business model, banks Reputation risk can emerge at all All units are responsible for the day- are always vulnerable to liquidity and business levels and has the following to-day management of operational risk solvency problems that can arise from key components: in their products, processes, systems mismatches in the tenor of its assets and activities, in accordance with and liabilities. i. Corporate reputation risk which the various frameworks and policies. relates to a bank’s performance, The Operational Risk Management MBL’s approach to market & liquidity strategy, execution and delivery of its Department oversight and control risk management comprises the services. This is closely knotted with functions: following building blocks: management’s reputation risk in their ability to create shareholder value and n Oversee and monitor the A. Market/Liquidity Risk Governance managing capital pricing. efectiveness of operational risk B. Policies management C. Risk Methodologies ii. Operational or business reputation D. Processes, systems and reports risk where an activity, action, or stance n Assess key operational risk issues taken by a bank, any of its afliates with the units or its ofcials will impair its image ANNUAL REPORT 2018-19 75
A. MARKET/LIQUIDITY n Reviewing and articulating funding risk arises when there is a mismatch RISK GOVERNANCE: policy between positions, which are subject to interest rate adjustment within a Risk Governance structure of MBL n Deciding on the transfer pricing policy specifed period. The bank’s lending, comprises of the following: of the bank funding and investment activities give rise to interest rate risk. The risks are Board n Evaluating market risk involved in re-pricing risk, yield curve risk, basis Risk Management Committee introducing new products risk and options risk. However, in the Assests Liabilities Committee context of the Nepalese fnancial (ALCO) B. MARKET & LIQUIDITY market, risk is very confned to Re- Chief Treasury RISK POLICY Pricing Interest Rate risk. Executive Department Ofcer (CEO) For the management of Market/ Re-Pricing Risk: it arises from timing Liquidity risk, the Bank has a very diferences in the maturity of fxed rates ASSETS LIABILITIES COMMITTEE efective Market Risk Management and the re-pricing of the foating rates (ALCO) Policy and Liquidity Risk Management of the bank’s assets, liabilities and of- Policy which defnes procedures and balance-sheet positions. If the interest ALCO is a management level risk authority including setting up various rate for deposits increases by 1%, the management committee consisting risk limits. Under these policies, the Bank may not be able to increase the of Senior Management of the Bank Bank has efective Assets Liabilities interest rate on all interest-bearing for implementation and monitoring of Committee (ALCO) which meets assets by the same margin. Further the the market/liquidity Risk Framework periodically and reviews interest rates, maturing fxed deposit of the bank may throughout the Bank. ALCO currently liquidity position, liquidity gap, FCY also not be renewed at the existing comprises of the Chief Executive open position, investment portfolio, interest rate. Such changes in interest Ofcer, CRO, COO, Head-Credit maturity limit for investment and takes rates can severely afect the Bank’s Business Management, Head -BDD, necessary decision as well as circulates proftability and net worth. Head-Finance and Planning, Head various guidelines to concerned Credit Risk Management and Head- departments for efective management MBL uses Repricing Risk Management Treasury.The ALCO defnes its liquidity of market risk. Model to measure the impact of the risk management strategy and risk interest rate change in the market tolerances. It also reviews the liquidity The Policy of the Bank stipulates a and RMC can take necessary steps to risk management policies and broad framework for liquidity risk make sure it doesn’t afect the banks’ procedures. Major responsibilities of the management to ensure that the Bank proftability and net worth. The model committee include; is in a position to meet its liquidity allows the bank to plan and take obligation. necessary action in advance to help grow its proft and net worth according n Keeping an eye on the structure/ composition of bank’s assets and C. RISK METHODOLOGIES to the changes expected in the market. liabilities and deciding about product pricing for deposits and advances. INTEREST RATE RISK The Net Interest Income Analysis is prepared by the Treasury Department in coordination with Business n Deciding on required maturity profle When interest rates fuctuate, the and mix of incremental assets and bank’s earnings and expenses changes Development Department (liabilities) liabilities. as do the economic value of assets, and Lending Department (credit sales) liabilities, and of-balance –sheet on a monthly basis and present report to ALCO/Risk Management Committee n Articulating interest rate view of positions. The net efect of these the bank and deciding on the future changes is refected in the banks’ for policy reviewing. business strategy. overall income and capital. Interest Rate 76 MACHHAPUCHCHHRE BANK LIMITED
FOREIGN EXCHANGE & rates, bank has maintainedExchange time bands. Any occurrences of COMMODITY RISK Fluctuation Fund as directed by Nepal forecasted shortfalls that cannot be Rastra Bank. covered by our counterbalancing Foreign exchange risk is the current or capacity will be escalated to the prospective risk to earnings and capital Stress testing is conducted to assess relevant committees for evaluation and arising from adverse movements in the vulnerability of their strategies and action. currency exchange rates. It refers to positions. the impact of adverse movement in Liquidity risk stress testing is performed currency exchange rates on the value EQUITY PRICE RISK regularly using cash fow maturity of open foreign currency position. The mismatch analysis, and covers adverse key exchange risks are spot risk, swap It is the risk due to adverse changes scenarios including general market and risk, etc. in the value of investment due to idiosyncratic stress scenarios. Stress price volatility. The risk arises from tests assess our vulnerability when Commodity risk is the risk that a bank macroeconomic instability, market liability run-ofs increase, asset rollovers may sufer losses as a result of adverse volatility, political unrest and under increase and/ or liquid asset bufers commodity price movements during a performance of investee company, decrease. In addition, ad hoc stress period in which it has an open position among other factors. tests are performed as part of our in spot or forward open commodity recovery planning and ICAAP exercises. position. LIQUIDITY RISK Liquidity risk control measures such Net open position approach has The primary measure used by MBL to as liquidity related ratios and balance been devised to measure the capital manage liquidity within the tolerance sheet analysis are complementary requirement for market risk. Treasury defned by the Board is cash fow tools for cash fow maturity mismatch is responsible to monitor net open maturity mismatch analysis/liquidity analysis, and they are performed position on daily basis. If any open gap analysis. This form of analysis regularly to obtain deeper insights and position exceeds the given limit, the is performed on a regular basis fner control over our liquidity profle Head of Treasury Department reports under normal and adverse scenarios. across diferent locations. it to the CEO immediately. The CEO It assesses the adequacy of our then informs ALCO/Risk Management counterbalancing capacity to fund or Further, regulatory ratios like CRR & Committee about the breach in limit as mitigate any cash fow shortfalls that SLR are well maintained by MBL as early aspossible.In order to minimize the may occur as forecasted in the cash required by NRB. risk arising from changes in exchange fow movements across successive ANNUAL REPORT 2018-19 77
D. PROCESSES, SYSTEMS showing the efects of various possible n Liabilities/resource mobilization AND REPORTS changes in market conditions related to products in terms of target, maturities, risk exposures. payment schedules, interest costs, fees, Robust internal control processes and etc. systems support our overall approach RMC/ALCO shall review following on in identifying, measuring, aggregating, quarterly basis; n Hedging, transactions booked, controlling and monitoring market outfows expected to arise from and liquidity risk across MBL. The n Detail cash fows, liabilities using contingencies (letter of credit, Market and Liquidity Risk unit manages Balance sheet and “of-Balance sheet guarantees, etc.) the day-to-day market/liquidity risk values. monitoring, control reporting and n Review of liquidity/Interest rate GAP analysis n Asset product(s) profle covering Reports sanctions, disbursements, and interest Treasury/Mid Ofce staf prepares rate/fee income/spread, repayments, n Stress test/simulation analysis. report for the information of senior assets quality and collection management andforecasts (simulations) parameters. 78 MACHHAPUCHCHHRE BANK LIMITED
CORPORATE SOCIAL RESPONSIBILITY ANNUAL REPORT 2018-19 79
Sustained economic performance, environmental and social stewardship is embedded in Bank’s Corporate Social Responsibility Strategy. The Bank is always committed to contributing in the felds of Education, Health, Infrastructure Management, Preservation of Cultural Heritages, Livelihood development, Social development and Environmental Conservation.
Not only through CSR activities, Machhapuchchhre always believe in the feld to conduct fnancial literacy the Bank have also contributed to contributing to greener environment. program targeting to the local rural uplifting the livelihood of many via Thus, we have conducted plantation communities within the periphery of micro lending and thus promoting across various locations of Nepal. our Branchless Banking Units. The entrepreneurship. Value-Chain- programs were conducted in Dhading, Financing project run in Partnership Preservation of National Cultural Dang, Rupandehi, Surkhet, Banke, with UKAid Sakchyam Access to Heritage, Ethics and Values Kanchanpur and Dadeldhura Districts Finance programme and Heifer The bank has contributed sizeable in 21 locations. The fundamental International Nepal. Have beneftted budget to Pashupatinath Temple objective of the program was to over 553 women smallholder farmers for construction of locker house enable positive behavior change and their micro enterprise. with lockers, shoe-locker house, towards inefective spending, tips to sitting arrangement for visitors, risk aversion of getting into debt trap, Education landscaping works, etc. We believe optimization of loans, understanding We always believe in giving back our contribution shall beneft the fnancial products, consulting fnancial to the community. Hence, we have thousands of visitors coming to the institutions for advice on enterprise used sizeable amount of budget to temple. development and providing a contribute to the education. We have new and efective lens for money provided fnancial support to various Financial Literacy management. Interactive sessions community school and colleges, Financial Literacy has also been were conducted by providing fnancial especially to the students in need. priority of the Bank. As a result of literacy study materials to the locals. Study materials such as exercise which, Bank, in partnership with We believe we have defnitely books, bags, and other stationeries UKAid Sakchyam Access to Finance chipped in for the fnancial inclusion were provided to the needy students. Programme appointed an expert in goal of the government. 80 MACHHAPUCHCHHRE BANK LIMITED
1 CSR EVENTS
IMAGE CAPTIONS
1. Financial aid to Happy Home Orphanage 2. Financial Aid to Shree Siddrtha Gyan Mandir Adharbhut School, Magydi 3. Financial Aid to Shree Shanker Adharhut School, Jumla 4. Disaster Rescue Management Equipment handover to Nepal Police 5. Sanitation program at Swayambhunath premises. 6. Tree Plantation at Sapan Tirtha, Kathmandu 2 ANNUAL REPORT 2018-19 81
3 5
4 6 82 MACHHAPUCHCHHRE BANK LIMITED
TECHNOLOGIES
Over the years, the way people MBL Internet Banking ATM perceive banking, and the banking Machhapuchchhre Bank provides ATM machines not only provide swift industry itself has changed drastically. the customers with a simple, quick, and convenient cash withdrawal facility Nowadays, customers do not want to secure and convenient online banking to the customers, but also hassle free visit bank branches and get banking experience. With MBL Internet Banking, balance enquiry and mini statement services in a conventional way and customers can easily keep track of their view, without having the need to visit likewise, banking services are no longer fnances, irrespective of the time and busy bank branches. Within this year restricted under the boundaries of place. MBL customers can easily view only, Machhapuchchhre Bank has four walls or a closed space. People their available balances in their deposit installed 55+ ATMs, leading to a wide can access their bank accounts right and loan accounts. Further, they can spread coverage of a total of 170+ ATM at their fngertips. So as to cater the also view their statements, open fxed outlets across the country. needs of tech savvy customers and to deposits, pay utility bills and transfer sustain and gain competitive advantage funds to various accounts at the ease of QR Payments in the industry, Machhapuchchhre a few clicks. Quick response code is a two- Bank Limited has been providing dimensional barcode that contains diferent digital banking services to the Additionally, Corporate Module of information. Machhapuchchhre bank customers. Internet Banking allows corporate has eased its corporate customers in houses to manage their salary receiving payments by generating a Machhapuchchhre Mobile Money distribution themselves without asking QR code for the enrolled merchants. Machhapuchchhre Mobile Money the Bank to do so. Corporate Module This QR code is readable with any follows the concept of “Bank on-the- has the easy and secured features application that is enlisted under go” by providing a host of banking that gives the Human Resource Fonepay and Union Pay. Payments services from a single mobile Department of the Institution power are a lot more convenient, secure application. This is the most convenient to control the functions related to the and faster with QR codes. QR code way to access the account and till date, payroll management from their Internet payments have fostered the movement there are more than 350,000 MBL Banking facility itself. towards a cashless economy. MBL has customers availing this service. Just registered more than 1,800 corporate with the installation of one App in the MBL Plastic Money customers for QR payments. phone, customers can cherish variants It is neither secure nor possible to carry of services: huge amount of cash with oneself. So, Machhapuchchhre Bank facilitates its Fund Transfer customers to digitize their money and Balance enquiry carry them in secure plastic cards. MBL Statement viewing provides a wide range of card facilities Convenient way to pay bills to its customers, ranging from plain (Telephone, electricity & other Debit Cards to embossed Credit Cards, utilities) quick Instant Cards and easy Dollar Top up facilities Prepaid cards. Till date, there are more Opening of Fixed Deposits than 310,000 MBL card holders across Credit Card Payments the country. These cards are widely Fonepay QR Payments accepted in every VISA enabled ATM Load Digital Payment Wallets (Khalti, and PoS outlets, and for e-commerce E-sewa) transactions within Nepal and India. Banking services without internet Also, MBL cards are chip-based and (SMS Banking) 3D secure, which vouch for its wide acceptance and secure transactions. ANNUAL REPORT 2018-19 83
POS Terminals facilities in the rural and remote areas, a bank account has become very easy Another channel that is helping the and providing easy fnancial solutions to and it can be opened any hours of the nation move towards a cashless the public. day or from any part of the world. economy is POS terminals. Machhapuchchhre Bank has deployed Plastic Cards Maya (Chat-Bot) more than 1,200 POS merchants Dollar Prepaid Cards can be used while Maya is an AI based chat bot which in various major outlets such as travelling to any parts of the world. is there to provide 24x7 online digital Bhatbhateni Super Market and Nepal assistant service to our customers. Medicity College, where the footfall of InstaPay Besides providing you many banking customers is higher. To facilitate wide Insta Pay is a value added product of knowledge, Maya is capable to answer range of payment options, MBL POS MBL under credit card for the fnancing all your questions relating to Bank’s machines accept not only VISA but of the consumer durables. With Insta products and services. Maya also Mastercard and Union Pay as well. Pay, you get to purchase varieties of listens to the complaints, grievances home appliances, electronic gadgets, and suggestions on the services of the Branchless Banking furniture, jewelries, and many more and Bank and resolve them accordingly. Branchless banking helps to include pay back in easy installments. those people into the fnancial system, who are staying in remote areas and Online Account Opening do not have access to bank branches. Customers may not visit the Bank to Machhapuchchhre Bank has 133 such open an account. With online account Branchless Banking Agents, serving for opening facility through the Bank’s the sole purpose of providing banking website and mobile banking, opening
1,200 310K MBL POS MACHINES MBL CARD HOLDERS
170+ 24x7 ATM OUTLETS CHAT BOT ACROSS THE COUNTRY ONLINE ASSISTANCE 84 MACHHAPUCHCHHRE BANK LIMITED ANNUAL REPORT 2018-19 85
SERVICE EXCELLENCE
Customer Service is not only a management and its stafs has representatives are involved to department but an attitude; this always priorities its customer frst; deal with the customer complaints mindset is carried by all stafs through its innovative products, and resolve it. To make the process involved in our bank. Service professionalism, branch network easier, we can contact via email to Excellence Department has been with full range of fnancial service. [email protected] for any focusing on the service delivery issue related to our bank. pattern of the organization, process MBL takes a pride to announce re-engineering, and continuous that we have establish a Customer behavioral training to its stafs. Bank Care Center where our dedicated 86 MACHHAPUCHCHHRE BANK LIMITED
PRODUCTS & SERVICES
DEPOSITS PRODUCTS
A. SAVING DEPOSIT PRODUCT XIV. Payroll Accounts: I. Machhapuchchhre Bachat Khata I. MBL Smart Salary account II. MBL Smart Bachat Khata II. MBL Surakshit Talab Khata III. MBL Pewa Bachat Khata III. MBL Salary Management account IV. MBL Balbalika Bachat Khata V. MBL Student Saving Account XV. FCY Saving Accounts: VI. MBL Yuba Bachat Khata I. MBL FCY Saving Account VII. MBL Samman Bachat Khata VIII. MBL Shareholders Saving Account B. TERMS DEPOSITS IX. MBL Remittance Bachat Khata I. MBL Fixed Deposit X. MBL Normal Saving account II. MBL Recurring Deposit XI. MBL Online Account XII. MBL Ek Byakti Ek Khata Yojana XIII. MBL Premium Saving Account ANNUAL REPORT 2018-19 87
Our Premium Saving Product Features/Benefts:
Deposit Oferings: Smart features: n Minimum Balance: NPR 5,000.00 1. MACHHAPUCHCHHRE BACHAT n 50% Discount on Locker Charge KHATA n Free Subscription of lnternet Machhapuchchhre Bachat Khata (MBK) Banking, MBL Mobile Money (M3) is one of our premium saving deposit n Free Subscription of Debit/Credit product catering both Individual and Card n Free ABBS Facility Institutional customers (Non Proft n Free ABBS Facility n Free DMAT Account Opening/ Making Organizations). MBK customers n Free DMAT Account Opening/ C-ASBA/Mero Share get to enjoy highest interest rate in C-ASBA/Mero Share n Free Cheque Book and Account savings along with various benefts: Statement on Demand Smart Health and Accidental Insurance Product Features/Benefts: benefts: Health and Accidental Insurance n Accidental Death Insurance upto benefts: Features for Individual Customer: NPR 1,000,000 (including partial n Accidental Death Insurance upto n Minimum Balance: NPR 500.00 impairment) NPR 1,000,000 (including partial n Free withdrawal facility from any n Hospitalization cost upto NPR impairment) ATM within Nepal 100,000 n Hospitalization cost upto NPR n Free Subscription of Debit/Credit n Domiciliary cost upto NPR 10,000 100,000 Card n Critical Illness cost upto NPR n Domiciliary cost upto NPR 10,000 n 50% Discount on Locker Charge 300,000 n Critical Illness cost upto NPR n Free Subscription of lnternet 300,000 Banking, MBL Mobile Money (M3) Premium Payroll n Free ABBS Facility 2. MBL SALARY MANAGEMENT n Free DMAT Account Opening/C- Accounts: ACCOUNT ASBA/Mero Share MBL Salary Management Account is We have been ofering best salary/ also a payroll management scheme Features for Institutional Customer payroll management schemes catering which focuses on cash management (NGOs INGOs/Trusts/other Non Proft to the cash management needs of requirements of organizations. Making Organizations): various organizations. n Minimum Balance: Zero Product Features/Benefts: n Free Cheque Book and Account 1. MBL SMART SALARY ACCOUNT Statement on Demand Our Smart Salary Account is a n Minimum Account Balance: Zero n Free Subscription of lnternet payroll management solution for n Statement of each staf provided Banking Facility organization whilst ofering the every quarter upon request n Free ABBS Facility employees with insurance coverage n 50% discount on annual locker fee benefts. n Free Internet Banking Facility, MBL 2. SMART BACHAT KHATA Mobile Money (M3) Smart Bachat Khata (SBK) is one of Product Features/Benefts: n Free ABBS facility in withdrawal and our popular saving products in the deposit market. Besides having higher interest Features: n Free Debit Card facility rate and many attractive features, SBK n Minimum Balance: Zero n Account to be automatically also includes insurance coverage of n 50% Discount on Locker Charge downgraded to Normal Saving upto NPR 1.41 Million. n Free Subscription of lnternet Account if salary is not received Banking, MBL Mobile Money (M3) in the customer’s account for six n Free Subscription of Debit/Credit consecutive months Card 88 MACHHAPUCHCHHRE BANK LIMITED
n Insurance coverage: Accidental Account for Elders (for age group customers and foreign employment Death Insurance of NPR 500,000.00 above 50 years) seekers. or 5 times of average balance, n Account Minimum Balance: Zero whichever is lower Personal Saving n Accidental Death Insurance Coverage of NPR 100,000.00 for Account for Women accounts maintaining deposits over 3. MBL SURAKSHIT TALAB KHATA: NPR 1,000.00 MBL Surakshit Talab Khata i