Withdrawals top hundreds of millions

More than $600 million flooded out of Cambodia’s entire banking system during the third quarter of this year, as fears of post-election chaos set off panic and mass withdrawals, new figures from the National Bank of Cambodia (NBC) reveal.
The figures, obtained yesterday, were the first system-wide indicators of how the banking sector fared since the July 28 poll awarded the election to the ruling Cambodian People’s Party. The results triggered allegations of foul play from the opposition, creating a tense stand-off marked by protests and go-nowhere negotiations.
National Bank of Cambodia Director General Chea Serey said yesterday that the sharp decline was expected every five years due to elections, but that this time around, it “probably” was the largest dip ever.
“When there are elections there is a bit of uncertainty,” she said. “After all, this is a young economy, there have only been five elections,” she added, referring back to the UN-backed poll in 1993.
Tensions have been high since disputed voting results came in months ago. Though largely peaceful, subsequent demonstrations by the Cambodia National Rescue Party were met with a heavy security presence in the city, and one man was shot and killed after authorities descended on a bridge to quell protestors in September.
The climate of fear extended to the financial sector, where many mistrusted the level of security maintained at banks. Deposits fell from $7.2 billion at the end of June 2013 to $6.6 billion at the end of September.
That means that account holders withdrew close to $630 million, or 8.7 per cent, of the total number of deposits held in Cambodia’s 34 commercially registered banks.
While large, the decrease did not astound observers, who have seen the same during the past several months with other financial institutions.
Acleda, the country’s largest bank, reported last month that customers withdrew $200 million in the period around and following the election.
Confident that customers would return, Acleda president and CEO In Channy said at the time that the bank had regained close to $186.5 million in little over a week after the quarter ended.
Industry leaders and economists echoed Channy’s positive outlook yesterday, pointing out that Cambodia’s banking system could even build trust with consumers by showing that it can weather a storm.
Charles Van, president of the Association of Banks in Cambodia, said the industry had made it through the withdrawal frenzy, and he did not expect any lingering effects.
“It always happens in the country during the election process. The money is withdrawn but then over a period of time the money comes back.”
Independent economist Chan Sophal said he had not seen any severe impact on other parts of the economy, as “the banking sector was able to absorb the shock”, he said. “It could even increase confidence in the future because of this precedent.”
Serey at the NBC agreed that there were no clear economic ripples bubbling, but that Cambodia’s economy always needed to be monitored.
“As regulators, as a central bank we would always be on the watch, whatever the situation. If it is not something that happens here it is something that happens outside that can spill over on us,” she said.
Not all believed the economy had turned the corner. Kang Chandararot, director of the Cambodia Institute of Development Study, said that as long as the political stand-off continues (the opposition is still boycotting parliament, the ruling party isn’t giving in on their demands) the cost of investing in the country could increase.
“The longer it holds, the worse the economy,” he said.

Japan’s Orix to buy stake in Acleda

Japan-based financial services provider Orix Corporation will acquire a little more than six per cent of Cambodia’s largest bank, Acleda, the bank’s president and CEO confirmed yesterday.
The deal, representing the largest investment by a Japanese company in the local banking sector, has already been approved by the National Bank of Cambodia, Acleda president In Channy said, adding that “the process is almost complete”.
Channy described Orix, a leading leasing company in Japan, as “a strategic investor that can bring expertise”.
Orix is buying the stake because of Acleda’s capacity, Channy said, such as the bank’s subsidiaries in the country and its presence in Laos and in Myanmar.
He declined to give further details such as the dollar size of the investment or if Orix would take over a specific function at the bank. The official announcement is due today.
A representative at Orix’s investor relations department declined to comment yesterday.
“From our side, we haven’t really released anything on this matter yet,” he said.
Orix business interests extend into a number of sectors, including real estate, insurance and banking. It also owns a professional baseball team in Japan, the Orix Buffalos, according to a Bloomberg profile.
Established in 1964 and headquartered in Tokyo, Orix is listed on the Tokyo Stock Exchange, the Osaka Securities Exchange as well as the New York Stock Exchange. For the six months ended September 30, Orix made net income of 80.4 billion yen ($13.2 billion), a 34 per cent increase year on year representing increased profits for four consecutive quarters.
The deal also represents the first investment in Cambodia by a major Japanese financial institution, according to a report in the Wall Street Journal yesterday, which valued the stake at around $55 million and also detailed four similar moves Orix made recently, including a June purchase of 20 per cent of Philippine power-generation company Global Business Power Corporation.
While its status as a financial group makes it stand out, Orix is not the only Japanese investor throwing millions into Cambodia. According to statistics from the Council for the Development of Cambodia, Japan was the third largest investor in 2012, contributing a total of about $212.3 million.
In 2008, Maruhan Japan Bank Plc became the first fully licensed Japanese-owned bank to open in Cambodia. In July of this year, Mizuho Bank became the third Japanese mega-bank to open a representative office, following Tokyo-Mitsubishi UFJ Bank and Sumitomo Mitsui Banking Corporation.
Finances and banking, however, represent only a small part of overall Japanese investment. On Sothearos Boulevard, construction is well under way for the Japanese-funded Aeon shopping mall, a $205 million project, which should be finished by mid-2014.
Embassy of Japan counselor Takayoshi Kuromiya said yesterday that investors are generally attracted to lower wage costs in Cambodia and its geographical location.
“Cambodia is very close to Thailand and Vietnam, so we can deliver some of the products to Bangkok and Ho Chi Minh and Hanoi very easy,” he said.
However, he said that Japanese companies, many of which invest in manufacturing, still have stability and safety concerns, alluding to discord after the national elections in July.
“So we hope that the Cambodian government will make a favorable environment for Japanese companies and improve political stability.”

Acleda debuts its credit card

ACLEDA officially launched its first credit card on Friday as Cambodia’s largest bank eyes the country’s rising middle income bracket, president and CEO In Channy said yesterday.
“This is the right time for us to start this Visa credit card product. By 2020, Cambodia will change from the least developing country to a lower middle income country,” he said.
For ACLEDA, it’s a step up from the ATM and debit cards the bank already issues.
By the end of this year, Channy said ACLEDA hopes to have 700 customers using the product, which is still a fraction of the more than 15,000 users of credit cards in the country.
Channy, however, expects a rapid demand for plastic over the next 10 years, and said the ACLEDA card will be more accessible than what’s available in Cambodia.
“We can go with any client whose income is as much as $200,” he added, referring to conditions for obtaining one of the cards.
Channy is not alone in his assessment of potential growth. Grant Knuckey, chief executive officer of ANZ Royal Bank, said that to describe the credit card market as “nascent” understates Cambodia’s “tiny” number of holders.
“The potential for credit cards is very high in this market given the low current base, the growing wealth of individuals, and the increasing consumerism evident,” he said.
ANZ Royal, according to Knuckey, has the greatest market share of credit card users in the country, with about 25 per cent of the total. Given the risks involved in a developing economy, however, the criteria for ANZ card holders are set high.
“Our own credit card business is very much targeted at our focus retail client segments, we do not target anyone who would not have a broader ANZ Royal relationship across other products,” he said.
Considering the 20 Visa-licensed banks in Cambodia including ACLEDA, Lorijon Bacchi, Visa country manager in Vietnam, Cambodia and Laos, said that the greater prevalence of credit cards can improve transaction efficiency, and “when used responsibly”, can provide a secure payment tool.
“As Cambodia’s economy grows, Visa is committed to working with our local banking partners to help Cambodian cardholders to understand how credit cards work so they can make informed decisions on how best to manage their money.”
National Bank of Cambodia director general Chea Serey said that with greater confidence in the banking sector, buyers and sellers are allowing more room for household consumer credit.
“But excessive spending is also a risk to be watched carefully,” said Serey, who added that “bad credit underwriting affects the bank balance sheet and profitability and can ultimately have repercussions on depositors’ money, the financial system and ultimately the whole economy”.

Acleda sees record decline

For the first time in its history, Acleda, Cambodia’s largest commercial bank, has recorded a quarterly decline in customer deposits as well as a decrease in loans.
Nearly $200 million was shaved off, according to official third-quarter results released on Friday, as customers withdrew their savings amid post-election tension. Acleda president and CEO In Channy confirmed the figures yesterday.
Deposits dipped sharply from $1.46 billion at the end of June to $1.26 billion at the end of September.
Channy attributed the shortfall to a political standoff unnerving many customers who fear their savings were not secure in the bank. Cambodia National Rescue Party lawmakers-elect are still refusing to take their 55 parliamentary seats earned in July’s election, citing allegations of voter fraud.
“This was the first time. Normally we grow exponentially,” Channy said.
As unprecedented as the fall is, Channy asserted that by last Friday, Acleda was surging back to normal levels and had regained close to $186.5 million in deposits, reflecting a fast returning confidence in the bank.
The 11-day turnaround usually takes over three months of normal growth to match.
“The profit after tax remains the same; we adjusted the lending rate and retained strong profits in the third quarter,” he said.
In another first at Acleda, loans contracted during the third quarter.
Falling deposits at Acleda meant that credit was also harder to come by. Rates were increased to deter “bigger loans”, he said.
Acleda recorded a drop of $2.8 million in consumer lending.
Local businessman and former ANZ Royal Bank CEO Stephen Higgins views the Acleda results as a gauge for a much larger economic problem brought on by political issues.
“Acleda is a very large bank, and touches just about every part of the economy, so what happens at Acleda is going to be a pretty good indicator for what is happening with the broader economy,” he said.
Following suggestive anecdotal evidence of post-election economic woes, the mass withdrawal at Acleda is one of the first concrete indicators to emerge, and the consequences could still be playing out.
For one thing, Higgins said the Acleda results demonstrate an unwillingness among Cambodians to part with cash, which is “really hurting” small and medium-size businesses.
Cambodian Economic Association president Srey Chanty is still concerned with economic factors after the election. Chanty said credit supply has been unable to meet demand, forcing the cost of borrowing to increase.
“The impact is mainly on the farmers and for those who want to borrow from the bank, to invest in their activity or to pay for their operations,” he said, adding that the problem could worsen if the situation continues.
As deposits rapidly flow back, however, Acleda’s Channy is confident that financial problems are stabilising, and he doesn’t expect broader ripples in the economy.
A recent spate of economic forecasts back up the positive outlook.
The International Monetary Fund raised its 2013 growth prediction for Cambodia to seven per cent last week, from 6.7 per cent in April. In a recent update, the Asian Development Bank (ADB) maintained its 7.2 prediction. For the moment, it seems, both agencies share Acleda’s confidence.
“As for the impact of the elections, we decided that we did not have enough concrete information or indications to make any sensible judgments,” said ADB senior country economist Peter Brimble.
Brimble added that trends remain positive, but the situation will be reviewed again in the first quarter of 2014 ahead of the ADB’s next forecast.
Grant Knuckey, CEO of ANZ Royal Bank, says deposits are flowing back into the banking system, and he doesn’t anticipate any more long-term effects.
Credit growth, however, will be lower in 2013 relative to 2012, according to Knuckey, “as banks have become more conscious of the need to manage liquidity.”
“This is actually a healthy thing, as credit growth was beginning to become excessive relative to economic growth and the narrow borrower base,” he said.
The National Bank of Cambodia, which records sector-wide deposit information, could not be reached for comment yesterday.

Cambodia Post Bank enters crowded sector

Cambodia Post Bank Plc opened its doors yesterday, becoming the newest player in an increasingly crowded industry.
Toch Chaochek, the bank’s chief executive officer, said the bank, which is partially owned by the country’s postal service, will target clients in micro and small to medium-sized enterprises (SMEs).
“We have a licence to operate as a commercial bank, but we are mainly concentrating on providing something similar to a microfinance institution,” Chaochek said. He added that loans range from as little as $300 to as much as $250,000.
The initial paid-up capital of $38 million is a joint investment. State-owned enterprise Cambodia Post is the smallest stakeholder, with five per cent. Canadia Bank Plc Canadia Investment Holding has 50 per cent, and Fullerton Financial Holdings, a subsidiary of Singapore corporation Temasek Holdings, owns a 45 per cent piece.
Gan Chee Yen, chief executive officer of Fullerton Financial, said his company has experience serving the micro and SME segment across Asia, and in comparison, access to funds here is limited.
“We are committed to sharing our capacities and building local skill that will help the financial services sector in Cambodia well into the future.”
Cambodia’s economic growth rate is forecast at seven per cent this year. The country has 34 licensed commercial banks, seven specialised banks and 37 microfinance institutions, according to the latest report from the central bank. In Channy, CEO of ACLEDA Bank, said that there’s still room for growth in the sector. Channy said the majority of banks are clustered in Phnom Penh, but demand for small loans in the provinces is high.
“Many SME owners still demand good financial services,” Channy said. “If they [banks] have good human resources, infrastructure, and enough capital, they still have a promising opportunity to grow.”

ACLEDA bank profiting in Myanmar

Six months after ACLEDA bank launched a microfinance institution (MFI) in Myanmar, the number of clients has outpaced predictions by more than fourfold as Cambodia’s biggest bank cashes in on growing loan demand in a developing industry.
In Channy, president and CEO of ACLEDA, said yesterday that at the end of August, ACLEDA MFI Myanmar counted 2,782 active borrowing customers, much higher than an expected amount of roughly 600.
The MFI has $251,000 in outstanding loans, Channy said.
“The loan demand over there is high, it’s very high,” he said, adding that loans are given to micro businesses and are mostly used for trade, such as the buying and selling of groceries or clothes.
ACLEDA is not the only bank seizing the opportunity to do business in a country emerging from decades of military rule. Last year, the Cambodian branch of Japanese-owned Maruhan Bank opened a representative office in Myanmar. A few months ago, in June, Australia and New Zealand Banking Group Ltd did the same.
Representative offices are often the way that banks test the waters in emerging markets before establishing a branch.
In September of last year, MasterCard was the first international payments network to issue a licence to a Myanmar bank, setting the stage for cards to be accepted in the cash-dominated economy.
Bun Mony, president of the Cambodia Microfinance Association, said yesterday that he doesn’t expect other Cambodian MFIs to follow ACLEDA’s lead and head over to Myanmar, “because most of them, they focus more on the Cambodian market.”
“They are starting to develop. But for me I see one constraint of the policy.”
According to Mony, in order to protect the poor, the Myanmar government caps the interest rate at which MFIs can give out loans. He said that MFI funds are from investors, so if MFIs can’t profit, interest will dry up.
“Even though there are MFIs already [in Myanmar], those MFIs cannot grow because there is no investment,” he said.
Bloomberg reported earlier this month that Tokyo Stock Exchange Group Inc and Daiwa Securities Group Inc were chosen last year to help Myanmar set up a stock exchange.
However, due to delays in setting the legal framework in place, Myanmar is running behind schedule for a 2015 launch.

Banking course to launch soon

The Institute of Bankers Malaysia (IBBM) launched a training course in Cambodia yesterday aimed at developing standardised skills in the country’s rising banking sector.
Tay Kay Luan, chief executive officer of IBBM, said the course, which offers certification in the global Chartered Bankers system, will bring trainees into a network of successful professionals.
“We want to improve and increase the learning outcome of the student,” Luan said. “It is important that whatever we teach them, they can apply in the workplace and at the same time can improve the performance of the bank.”
IBBM will work with the Cambodian Institute of Banking, a group owned by the Association of Banks in Cambodia, to develop the curriculum. Students have to pass three levels, comprising nine modules.
Modules in the first level cost $250, with prices increasing in the second and final level.
A launch date for classes has not been set.

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