An Introduction To Banking In Nepal

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"Bank" originally derived from the word "Banco" meaning "Bench" is termed as a financial institution which are established in order to provide financial services to its customers while helping the investors at the same time. (De Alberquque, M., 1855) These are licensed by the government so as to help in the monetary aspects of the country. In contrast to Nepal, generally Nepal Rastra Bank (NRB) the central Bank of Nepal has divided into different groups and had licensed as per the limitations for the service. They are categorized as Commercial bank into Group 'A', Development banks 'B' and similarly finance companies and credit unions to Group 'C'

Machhapuchchhre Bank Limited: An overview

Machhapuchchhre Bank Limited (MBL) is legally registered as commercial bank in 1998 in Nepal. It started its banking services from western region of Nepal with its head office in Pokhara, Nepal. Having a slogan "Service with personal touch", the bank now has expanded its business into various parts of Nepal.

Company's profile:

Mission and Corporate strategy:

Machhapuchchhre Bank Limited (MBL) believes on the provision of the best services throughout different regions of Nepal to facilitate the customers with the extravagant banking services to their homes. The bank is also one of the modern banks with various modern technologies which of course make banking a revolutionary interest and great help. With its company slogan, the company's mission is to promote banking to different part of Nepal whether its hilly region or Terai or even mountains, MBL strives to facilitate the customers with fast, efficient and reliable service with personal touch as well as meeting the international standards at the same time.

MBL believes to provide its full fledged banking service and had started its full fledged branch in the Jomsom located high up in mountains too. It has its corporate strategy of serving fast, efficient and reliable service to promote banking either by providing credits, deposits and even safe and fastest remittance. The bank has targeted to open 4 more branches in the year 2009/10 so as to provide service with personal touch.

Mission and Vision chart:

Mission statement of an organization is a formal written statement which guides the objectives and actions to be fulfilled. The mission statement serves 'the framework or context within which strategies are formulated' (Hill Ch., Jones, G., 2008) The mission statement also gives guidelines of the actions and objectives to gain. G. Johnson, K. Scholes and R. Whittington defined mission as 'overriding purpose in line with values or expectation of stake holders'.(Exploring corporate strategy, pp13) Vision statement of an organization is the future note where the company wants to be. G. Johnson, K. Scholes and R. Whittington defined vision as 'desired future state: the aspiration of the organisation' (Exploring corporate strategy, pp13)

Mission Statement

"To Serve customers with best, effective and efficient service in affordable rates and provide each and every service with personal touch."

Vision Statement

"To be the top commercial bank with full fledged service all over Nepal and to be the No. 1 Bank of all year recognized by Nepal Rastra Bank"

Fig, 1 Mission and Vision chart of Machhapuchchhre Bank Limited

Goals and Objectives:

MBL possess a goal to be one of the popular and perfect service oriented bank rather than profit oriented one. MBL even had issued various plans and objectives to help in the increment of the services to its customers. In order to ease the banking service, MBL had planned to start telephone banking by which the clients can stay in touch with their financial transactions just a step away from phone. They even had prepared a goal to issue credit cards which some banks only have the service which can be said as another important goal and objectives to have a new turn in to banking. In addition, to broaden the service, MBL will be opening its 4 more branches very soon. The objectives of the bank can be analyzed to provide maximum services to the people in each and every part of Nepal.

Organizational Structure, Stakeholders and Management:

MBL is operated and managed by Chairman Mr. Surya Bahadur K.C., 6 board of directors and CEO Mr. Bhaikajee Shrestha (http://www.machbank.com) With approximate figure of 320 staffs all over the branches and head office, the company follows Line organization but the decisions making authority are being granted to the branch managers for their designated branch. Various decisions, plans and policies are being decided by board members and final approval is done by the chairman however day to day operational decisions are being approved by the CEO itself. Normally, the organization has all its delegation of power being centralized except day to day operational decisions apart from head office to the branch managers for their designated branch. Most of the stakeholders are the board of directors and some political bodies too but majority of the investments are done by the board of directors. Also some staffs occupy some value of the stakes as well.

Chairman/Board of Directors

Chief Executive Officer

Fig. 2 Organization chart of Machhapuchchhre Bank Limited

Business Profile:

Products and Services:

MBL provides various ranges of services to the customers. It is the pioneer in introducing the latest technology and to introduce the centralized banking software named GLOBUS BANKING SYSTEM developed by Temenos NV, Switzerland. Furthermore, MBL also provides internet banking, mobile banking, any branch banking, Trade Finance, Credits, ATMs (Automated Teller Machines), Remittance and various sort of deposits. The company is very sooner going to launch MBL credit cards and telephone banking as well. Also, MBL is the first bank in Nepal to provide PSTN (Public Switched Telephone Network) to its valued customers.

Operational Performance:

MBL overall has shown a good performance as per its unaudited financial reports of the year 2008/09. Over its past decades MBL has shown increment on profit as well as increment on its branches which of course shows that the company is doing well so far. At the end of fourth quarter, MBL had a net profit of 92M which shows that the company had numerous transactions throughout the whole quarter.

(Source: Unaudited 4th quarter end (15/07/09) of the fiscal year 2008/09, http:// www.machbank.com)

Market Position and Share:

MBL overall have a good market value and goodwill at the same time. Currently the market value of the share is NPR 310.00 per share which shows a green light on the progress of the company. Also, the bank have got 31 branches till date and have its 10 upcoming branches to be opened which of course can be assumed as the market position of the company is good and doing well so far.

(http://www.nepalstock.com, Nepal Stock Exchange as of closing price of 6th December 2009)

Part 2:

An analysis of the external and internal environment of the company examined above and competitive position of the company (1000 words)

Every company is affected by its external and internal environment. These are the integral part of the companies itself. External environment can be described as a set of elements which are not the part of the organization but possess an influence upon the organization. The external environment may constitute of consumers, suppliers and competitors which have the direct effect on the organization whereas the indirect elements of external environment may be government, State of the economy, scientific and technical growth, socio-cultural events and laws and policies by the government. Hence, whatever is the new external environment, the organization has to cope up themselves. Similarly, internal environment can be termed as the environment within the organization itself. They may include employees, shareholders or stake holders etc. The internal environment can be modified or amended as the whole authority and rights are embedded on the organization itself apart from external one.

Internal environment of the company:

The internal factors can be analyzed by various models however the internal environment can be analyzed by using Lewis six factors model which describes the in-depth analysis of internal environment in context of MBL. Also, these factors give a broad idea of involvement of various departments in order to describe the internal environment of the company.

IT (Information Technology):

MBL uses a very advanced technology for the banking services. A new advanced technology called 'GLOBUS' is being integrated in the company which provides best services in the banking field. It is also considered as the effective and powerful software which provides related backup services. The company also have its centralized information technology department which regularly looks ahead into develop new softwares and are alert 24 hours for any problems to occur. Also, the company have introduced V-Sat network for the branches which are in mountain regions as Mustang, Damak etc. Overall, we can say that the company's IT sector is very much advanced and is much more effective in banking environment.

Management Capabilities:

MBL have a team of capable employees working in various departments. They are well qualified and the bank also regularly conducts various training programmes so as to make their employees much more capable in any sort of situations. Also, the company organizes in house seminars so as to promote the employees knowledge much more. Because of its talented employees, the company is increasing its branches and is earning much more profit at the same time. The management is much more effective which is hence enabling the company to exist till now in the fierce competition of banking in Nepal.

Finance:

Finance is one of a very important aspect for any firm. Considering the financial status of MBL, it is growing day by day and earning much more profit. MBL earned around NPR 92 M at the fourth quarter end of year 2009 whereas corresponding earlier year of NPR 85M and is earning day by day. MBL have a good relation with the central bank even and can issue up more shares upon needed. Thus it can be analysed that the financial position of the bank is much more stable.

Research and Development:

MBL focuses on to the research and development of new aspects of banking and services to its prospective clients. The company has its own research and development department which focuses on to research new activities and to promote their services in to peoples. Because of the fierce competition in banking sector in Nepal, this department plays a vital role in to develop new schemes and new services to the clients apart from other banks. Also, the company invests good sum of money in to research and development of new services towards future perspectives.

Marketing:

Marketing can be defined as "the management process that seeks to maximize returns to shareholders by developing relationships with valued customers and creating a competitive advantage." (Paliwoda, Stanley J, John K. Ryan, 2009). The company has its own marketing department which co-ordinates with research and development department. They both have the same motive in order to generate much more potentiality and increase its turnover in best services to the customers. Also, the department regularly dissolves in market to gather new ideas and concepts which by the research and development department makes research and develops new strategies.

HR (Human Resources):

MBL have another department which looks around human resources and administration of the company. MBL welcomes new generation to employ in the company and believes on equal opportunity for all. The department also administers and involves in to budgeting daily activities of the company. Also, HR department helps in to gather talented peoples and conducts various assessments among the employees in order to gain the best outcome of it.

The internal environment of the MBL focuses on to its core components as per Lewis 6 factors model. Analyzing the model, we can illustrate that the internal components of the company is very much effective and plays an important role in determining the internal perspectives of MBL.

External Environment of the company:

External environment for MBL are generally customers, competitors, central bank's policies and socio-cultural aspects. The external environment plays a vital role in determining the external status of the company. Normally, the external environment is uncontrollable but directly affects on the functioning of the company. The external environment of MBL can be picterised by using PESTLE analysis. The PESTLE analysis determines the political, economic, socio-cultural, technological, legal and environmental aspects which gives a clear picture of the external environment of the company.

Political factors:

Nepal is a country where political factors play a vital role in each and every industry. Because of the regular strikes, riots in the country many more industries are very much affected. In context to MBL, because of the political factors, the company is suffering a lot as they can't operate efficiently during strikes, riots and because of the regular change of the government, various rules and regulations are modified which hence creates a various problems in to the banking of the company especially in MBL.

Economic factors:

The economic situation of Nepal is always fluctuating. Because of it, the exchange rates of various currencies are changing on rapid basis. Also, because of the development of various banks in Nepal, customers have a high bargaining power in between the banks. This has affected MBL severely as the customers who are only on MBL are now diverted on to the other companies. Even because of the economy in Nepal, most of the people don't wish to invest money in to any projects and the ratios of consumer loans are decreasing because of the interest rates and the economy.

Socio-cultural factors:

MBL possess certain social responsibilities and are maintaining good as they are much more into providing good services to the customers. Also, the company invests certain amounts in to education for children's and various governmental and non governmental activities. It has been a trend in Nepalese banking sector of investing funds into various programs for child welfare, transportation and various educational activities. Also, the company has various schemes for different age groups and also contributes for their personal growth especially for children.

Technological factors:

The banking sector of Nepal is following advanced technology in to serving new services to the customers. Various advanced programs are being organized in to gather new innovations in terms of banking of the company. MBL adopts advanced technology in to serve effective and accurate services to the customers. Also, the company even invests funds into its research and development department so as to launch new services in considering the needs of the current market.

Legal factors:

The banking of Nepal is regulated by Central Bank of Nepal (i.e. Nepal Rastra Bank) The central bank regulates various rules and regulations in order to constitute the proper banking services to the customers. The central bank regularly changes rules and regulations which hence make a vast confusions and time in order to adopt the new rules and regulations. Also, the legal factors of Nepal affect the proper functioning of the banking services in Nepal. Not only in context of MBL but overall banks in Nepal.

Environmental factors:

The environmental factors play a vital role in each and every organization. In terms of MBL, the environmental factors are generally attitudes of consumers, media and the government. Because of the reputation of MBL, various customers trust the company much more which is hence helping in to gain success in company. Also, media also helps the company in to promote their services towards the general public as by the investment towards the media sector as well as various other sectors too.

Thus internal and external environment plays a vital role in determining the company's portfolio from inside and outside layer as well. In terms of MBL, we can demonstrate that the internal environment of the company is much more effective whereas the external environment is much more effected by various factors as these can hardly be controlled.

Identification and evaluation of alternative strategies that would consist of corporate goals and objectives and select an appropriate future new strategy.

Strategy is the mean by which objectives are achieved and pursued on time. According to Gavetti G and Jan Rivikin W 'Strategy is choice about what it chooses to do and not to do'. MBL generally focuses into customer satisfaction and excellent service to their business clients. To increase more customer satisfaction and performance, MBL always strive to improve the performance by various methods and latest technology. To be the best service provider, MBL aims to open additional branches so as the banking service can be available readily anywhere any time. However, various alternative strategies can be discovered which will increase the customer satisfaction level and services at the same time.

Ghemawat P. developed a model called AAA triangle which identifies three distinct types of strategy. They refer to adaptation, aggregation and arbitrage. Adaptation means to familiarize with new technology and environment and aims to maximize company's local relevance. This also boosts the revenues and market share by maximizing a firm's local relevance by simply creating local units in each national market that do pretty good job carrying out all steps in the supply chain. (Ghemawat, P. 2007) This framework even focuses on to the company to develop its new image towards the new generation. Since, the world is changing day by day and is the new technology; the adaptation into new environment is a must. The another one is aggregation where a company tries to achieve economies of scale by developing new products and services by creating both local and global operations. It also attempts to deliver economies of scale by creating regional or sometimes global operations and involves standardizing the product or service offering and grouping together the development and production process. The company also has to develop and introduce new products and services which reasonably have benefits upon everyone. Arbitrage means to locate and supply services in different parts. It is the exploitation of differences between national or regional markets, often by locating separate parts of the supply chain in different places. (Ghemawat, P. 2007) Thus as a future strategy, the company should now focus on to developing new products and services and enlarging its business.

Fig 3.Ghemawat's AAA triangle framework

Another Strategy is BCG matrix developed by Boston Consulting Group. According to Kotlar (1996) BCG approach helps to classify a company's all SBUs according to the growth share matrix. It identifies firm's strategic business units relating to its market share and market growth rate. The growth share matrix can be divided into four types as follows:

Question Marks

Star

High Low

High

Dogs

Cash cows

Market

Growth

Low

Market share

Fig 4. Boston Consulting Group's BCG Matrix

There are two axis which represents as Market Growth rate and Market Share. Each and every cell inside the matrix can be highlighted as follows:

Stars:

Stars are high market growth in relation to high market share. These are the pillars for each and every business. The stars in MBL are the deposits and loans and advances by which the company is able to make much more income. This requires much more investments as well and also increase in high market share and growth as well because if the company have more deposits and loans, the company's profit will increase subsequently.

Cash Cows:

Cash Cows are low growth in market but high market share. These require less investment but would affect in the market shares. In MBL, cash cows can be considered for Letter of Credits, guarantees which require less investment but would affect on the market shares. The cash cows don't necessarily effect the market growth as regards to stars.

Question Marks:

Question marks are low share business units in high market growth. The question marks are some aspects which the management should think in order to overcome it and turn into stars or cows. In MBL, the question marks can be market for cards (debit and credit cards) etc. The company should have special consideration in question marks.

Dogs:

Dogs are low growth in market with low share price. They may generate some amount of funds but doesn't make any guarantees on company's income. In MBL, Dogs are lockers departments etc.

BCG Matrix gives a broad idea about the factors that are prevailing in a company which are giving much more profit or loss in terms of market group. This strategy could give the company an innovative idea about building or restructuring the business.

Comparing both the strategies, MBL should adopt Ghemawat's AAA triangle framework as this clearly matches to the organization goals and objectives to attain in future. The framework explains that to stabilize a product, there has to be an adaptation factors, aggregate it and arbitrage. MBL's target is to be the top commercial bank in Nepal and introduce new products and services which can only be possible if the company focuses on the framework. Also MBL should focus on the information flow to all the branches so as to properly stabilize the new services. Neilson, G., Martin K. and Powers E (2008) suggests that the enterprises fails at strategy execution because they go straight to structural reorganization and neglect the most powerful drivers of effectiveness-decision rights and information flow. Thus, before starting any new services or any new tasks, the company should gain its adaptation factor so that they could adopt in new environment easily. After adopting in the environment the company also needs to increase its market into local and national markets to attain much more productivity. Thus we can see that if MBL adopts Ghemawat's AAA triangle framework, the company would be able to attain its mission and vision that has been projected by them. This would increase the company's effectiveness on any tasks and would help them to gain much more success at the same time.

Kim C W and Mauborgne R, Blue Ocean Strategy argues that company's performance is not necessarily determined by industries competitive environment. It argues that strategy can shape the structure and it is called 'reconstructions'. They even add that instead of letting the environment define your strategy, craft a strategy that defines your environment. This highlights that rather than creating a strategy limited only in papers you will require to adopt to the environment, aggregate them towards the near future group and develop them in local or global market which is very much similar to what Ghemawat had proposed in his framework.

Identify and develop outline time table and resources requirement to implement new strategy.

It's very much obvious that to make each and every strategy successful, various resources and time tables are required. Proper dedication and knowledge will only be able to make a project successful. The strategy developed by Ghemawat as AAA triangle framework is something which I suggest to be adopted. The strategy "Equal opportunities to every people financing in their needs and motivate into a new track" would certainly help to start up banking into a new style and lead to a successful pathway. This strategy would develop an awareness and usage of the services to the maximum. Basically, new guidelines should be created for to make this strategy fruitful. A system where people can get financing easier should be initialized so as new business entrepreneurs could be able to start up their business with the bank's help at the same time. Various job opportunities should be require generating up not specifically full time as initialization of part time or hourly job basis could be done so that maximum number of fresh graduates or unemployed people could get employment and in return the organization will be benefited by different ideas, opinions and new way of working.

As Ghemawat's AAA framework suggests Adaptation, Arbitrage and Aggregation, various resources should be allocated and new services to be launched as:

Launching various deposits schemes targeting to students, old age peoples and children. Inauguration of old age cards, student card etc. which can be used in shopping centre, transportations etc.

Launching online bill payments from their accounts via mobile.

Use of Credit cards system elsewhere.

Cash Deposits in any cash points or ATMs.

Collaboration with educational institutions for banking services.

Promotion of various NGO's, INGO's or programs to advertise them free of cost.

More job opportunities to account holders, insurance benefits or easily loan availability facility.

The time frame for this strategy entirely depends upon how fast the authority decides to start it up however if this new style of business could be adopted, major changes will occur and the profit will sky rocket like never happened so. Generally, the top level managers should require understanding the benefit of this strategy and how it could be implemented in short span of time. New concepts, ideas should be promoted which could cover the usual old style of banking as with the new age of development. Meanwhile, the experience of old peoples which new ideas and working style of modern age could be more helpful to boom the business and to have a look on to the business with different perspective. Meanwhile, the company could employ 30% of experienced old people and the rest with new and energetic peoples. This would certainly create up a milestone between old people's experience and new peoples working efficiency. Furthermore, invitation or equal opportunities should be started so that the people who belong to lower community or of different age group could certainly use their efficiency to attain the same goal.

Major functional departments should also be considered while discussing the time frame and the resources required adopting AAA triangle framework strategy as:

HR (Human Resources)/Administration: This department should recruit new employees and should start up giving adequate trainings to its exisiting employees. The administration should also allocate various resources required for to start up new services. The time frame for this s

Finance: The finance department should allocate budget required for the resources and new projects.

IT (Information Technology): This is a primary essence as without new technology new services can't be launched in today's computer generation.

Marketing/Research and Development: Various researches should be conducted prior making decisions and hence publicity of services should be done at the same time.

Therefore, summarizing the all we can analyze that the materials that are required for to implement the new strategy are time consideration, additional opportunities in various field, change of working system, Focus on to new peoples or modern age groups and also consideration in the new technology. These sort of materials could certainly help in to implement the new strategy successfully and to start up the new perfection on to the business however new understanding and far sightedness upon these should be developed at the beginning before proceeding ahead with these materials. Also the time factor should be considered as well so that the strategy could be implemented on the right time. Furthermore, it can also be said that success entirely depends upon opportunities and hard work, hence to be more successful, an individual should be able to do hard work and the company should be able to create new opportunities. Then only the strategies could really show up some colors on the development and growth of the company.

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