It is said there is short supply of experienced human resources in the banking sector. What is your view?
Nepali banking sector´s growth has taken place in a haphazard and unorganized manner. The proliferation of banks and financial institutions (number of which has crossed 200) was largely the result of strategic blunder made by the state. If the regulator had been more cautious in extending operating licenses to banks and financial institutions (BFIs), we probably would not have faced shortage of human capital. As of now, employees in the top management level have 15 to 20 years of sound banking experience. But there is dearth of knowledge and skills in mid- and low-level staff.
So why aren´t BFIs investing in their employees?
Much of the explanation for this problem stems from the culture at the top management level, which hesitates to convince board of directors about investment in employees. At the same time, the board of directors is dominated by promoters, who are more concerned about profit, return on investment and dividends. Because of excessive pressure on money making, cost cutting measures are sought. In this process, training and human resource development are forgotten and institutions learn to live with low skilled staff. Many think a bank can be run solely by a branded or competent CEO, which, in fact, is not true. So people at the top-most level lack awareness about the importance of human capital.
Do you mean to say BFIs need to spend more on training?
Yes. Growth in the banking sector has taken place only in terms of quantity, not in terms of quality. This is because BFIs consider investment made on human resources as expenses and not as value addition. If BFIs want to generate healthy balance sheets, promote productivity and ensure sustainable profitability, they must invest in their employees. They must realize that in a highly competitive environment, focusing solely on sales and profit may erode their chances of remaining competitive.
PHOTO: KESHAB THOKER
So how much should BFIs spend on training and human resource development?
BFIs should invest at least seven percent to eight percent of their gross staff expenditure on training and human resource development. Currently, even established commercial banks are not allocating one percent of their total staff cost on training.
How many BFIs are currently making relatively higher investment in human capacity development?
Out of 32 commercial banks, not more than five or six are investing in human capacity development proactively. In development banks and finance companies, it is negligible.
You mean to say most of the BFIs here are treating their employees as staff and not as human capital?
Exactly. The word capital is associated with investment and once you invest this capital you start getting good returns.
Is that why operational risks (risks generated by people, systems and processes) are going up in BFIs?
Internal compliance should also be made robust to contain operational risks like debit card and check fraud cases that recently took place in Nepal. These cases generally erupt because of involvement of trained senior staff and weak internal audit processes. But again, everything boils down to training. If these BFIs had made training and human resource development integral part of their operation, their staff would have been aware about these issues and a culture of check and balance would have been inculcated. This could have minimized operational risks. So the banking industry has to wake up soon and do some soul-searching. If not, one or two smart people will always be able to manipulate the entire system.
What about the board of directors, as many of them lack banking knowledge?
Yes, we have to accept the fact that board directors in Nepal do not have sound knowledge of banking, as more than 90 percent of them come from non-banking background. But this should not be used as an excuse to remain non-functional. Banking, in fact, is a technical subject, so lack of understanding, awareness and education obviously bars many board directors from formulating sound policies, putting forth critical questions to the management and expressing concerns. But those that have accepted the challenge of sitting in the boardroom need to be able to set a vision for their institution and continually check whether the policies formulated by them are being implemented. However, this does not mean board directors should get involved in day to day operation of BFIs. That demarcation has to be set very clearly.
Another problem faced by the banking industry is of poaching. Many junior level staff members, who change their workplaces, get promotions that they had never thought of. Isn´t that posing risk to BFIs as well?
Yes, that is also a challenge. In many cases, BFIs are expanding network without assessing the quality of human resources they have. We have come across cases where staff with two-year experience have been promoted to the post of branch manager. Can a person with such little banking experience undertake a broad range of tasks? Will that person be able represents the entire organization in a particular area? At the same time, many branch offices are run by two to three staff members. With such a low number of employees how can the process of check and balance be pursued? These are some tough questions that BFIs need to answer.
So what kind of training programs do you recommend for various levels of staff?
Every organization should first set their business goals for the year and assess the quality of skills inherent in the company. If the set of available skills is not enough to meet the target, the organization should identify trainings that are required to achieve the goal. At present BFIs need to focus on enhancing both hard and soft skills. Hard skills refer to credit management, risk analysis, customer service and asset-liability management, among others. To complement these hard skills, BFI staff members also need soft skills like pleasant behavior, positive attitude, personality, leadership quality and proactive approach. So a combination of both hard and soft skills is required.
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