INSIGHTS ON NEPALI BANKING SECTOR
The above section identified some of the pertinent collusive behaviour within the Nepalis banking sector. It revealed some of the challenges and issues that plague the sector—these need to be rightly addressed through necessary reforms. The following section covers the qualitative part of the study wherein it analyses competition and collusion through information gathered by means of primary survey through interviews.
4. Analysing the Banking Sector in Terms of Competition and Collusion The results of the study were obtained by means of interviews with relevant personnel and experts from both the banking and non-banking sector of the Nepali economy. The questionnaire was designed in a way so as to understand and evaluate experts’ views in terms of competition and collusion amongst commercial banks and understand the rationale behind collusion and their impact thereof due to such behavior. The questionnaire also focuses on identifying the validity of the various cases of collusion amongst commercial banks in the recent past. The section begins by highlighting the overall stature of the banking sector in terms of competition and the role that the regulators play in creating an environment that facilitates or stifles competition amongst commercial banks. To analyse the competition and collusion in the banking sector, the outcome of the study have been discussed in relevant headings.
4.1 Stature of Competition in the Banking Sector of Nepal To begin with, the economic liberalisation of the 1980s brought significant transformation in the financial sector that propelled the growth of BFIs in Nepal. The banking sector has come a long way since the early days although substantial room is still left for improvement and progress. In terms of competition amongst commercial banks, numerous interpretations were drawn through the interviews with experts. However, the overall views expressed on competition among commercial banks in Nepal was rather bleak. It was determined that although banks compete, they are merely competing on commodities rather than on products, and hence they come up with indistinct products with only certain modifications. For instance, banks compete aggressively and undercut one another in terms of attracting customers by providing women focused schemes, regular salary accounts, no balance deposit account and so on; however, banks competing at such capacity are viewed only at an operational level and therefore they lack stand-out products with a Unique Selling Point (USP). It was laid out that a common trend is that a leading bank would come up with a new product and promptly other banks would emulate that and come up with their own product with minute modifications. Additionally, the existence of a number of BFIs in the economy was also raised as an issue. Although the number of banks in Nepal have drastically reduced over the recent past, it was questioned whether 27 commercial banks were indeed needed considering the population size and economy of Nepal. Considering the size of the bankable population, the competition among the 27 commercial banks is intense despite the reduction in the number of banks. Furthermore, the competition is intensified by the ever presence of development banks, and SACCOs who are fighting for the same customers. Therefore, the issue is less about intensity and more about sustainability—there might be too many banks competing for the same customers by offering nearly www.nepaleconomicforum.org
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