How SOE Reform Has Transformed Timor-Leste's First Commercial Bank
Project Result / Case Study | 1 May 2019
Q&A with Paolo Spantigati, Timor-Leste Country Director
Q: ADB helped Banco Nacional de Comércio de Timor-Leste (BNCTL) become the country’s first state-owned commercial bank in 2011. What progress has the bank made in the past eight years?
A: With ADB assistance, BNCTL has opened 13 branches in all of Timor-Leste’s municipalities and operates 30 ATMs across the country. It has the highest penetration of financial services in the country and through the strengthening of its processes, systems and human resources has achieved a sound and successful performance as the country’s only national commercial bank. Its risk management, processes, and IT systems have also been strengthened according to international best practices.
Q: How have the people of Timor-Leste benefitted from the ADB-supported commercialization of BNCTL?
A: The people of Timor-Leste are benefiting from the banks’ expansion in a number of important ways, including competitive and attractive lending products (BNCTL has the country’s largest number of borrowers), the introduction of internet banking, the growth of ATM and POS (payment terminals) services, and soon-to-be-launched mobile payment systems.
Q: How has BNCTL positioned itself as a state-owned enterprise reform success story for Timor-Leste?
A: TBNCTL was born from a micro finance institution and has been transformed into the country’s first state-owned commercial bank. It has become a modern, efficient, and profitable bank, appreciated by the public and has the widest financial penetration of any bank in the country. Its recently approved governance bylaws will ensure that government ownership sustains the efficient management of operations without undue interference, and corporate governance practices will be in line with best international practices.
Timor-Leste’s financial system is relatively small. It comprises only one locally incorporated commercial bank – Banco Nacional de Comércio de Timor-Leste (BNCTL). Since its birth as the country’s first state-owned commercial bank in 2011, BNCTL has made good operational and financial progress. In the past eight years, Timor-Leste´s economy has grown at a relatively fast pace. BNCTL has been gradually increasing the range of products and services available to its customers, although the amount of credit available to Timorese households and private sector remains very low.
Banco Nacional de Comércio de Timor-Leste (BNCTL) has 13 branches in all municipalities and some sub-branches in Dili. In all, it operates 30 ATMs across the country.
With the Asian Development Bank’s (ADB) technical assistance (co-financed by the Government of Australia and ADB), BNCTL was able to implement a new core banking technology platform in 2017 and roll out a nationwide plan to introduce ATMs and point-of-sale terminals (POS) across the country. Since then, BNCTL customers have been able to access their money and conduct transactions at their convenience.
Currently, BNCTL has 13 branches in all municipalities and some sub-branches in Dili. In all, it operates 30 ATMs across the country.
However, BNCTL was still in need of improvement and support to progress toward becoming a fully-fledged commercial bank. An ADB review identified the lack of a capable and independent Board of Directors, comprising executive and non-executive directors, as one of its main shortcomings. Following ADB’s recommendation, BNCTL and shareholders agreed that establishing an appropriate corporate governance framework was critical for the continued sustained growth of BNCTL and to ensure better service delivery.
To improve the corporate governance of BNCTL, ADB provided policy advice, along with legal and regulatory drafting support, and is now leading efforts in coordination with its Board of Directors and management, the Government of Timor-Leste, the Central Bank of Timor-Leste, and other teams of technical advisers.
An important milestone came in February 2019 with the approval by the Council of Ministers of amendments to BNCTL’s decree-law and new articles of association, which were endorsed by the Central Bank in 2018. This means the government now has the tools to appoint a professional and independent Board, transforming the bank’s leadership and management.
A new operating framework will move BNCTL closer to becoming a fully-fledged commercial bank operating competitively and positions the bank as a state-owned enterprise reform success story for Timor-Leste.
A new operating framework will not only move BNCTL closer to becoming a fully-fledged commercial bank operating competitively, but it also positions the bank as a state-owned enterprise reform success story for Timor-Leste and may serve as a model for future state-owned enterprise reform in the country. BNCTL has come a long way since it began its gradual journey transforming into Timor-Leste’s first commercial bank.
The approval and implementation of its new corporate governance structure opens a window of opportunity to build BNCTL’s strategic role in the country’s financial system—increasing access to finance to individual clients and to micro and small businesses, and promoting financial sector stability, financial inclusion, and economic growth.