As Cambodia moves towards greater development, its banking and finance industry may face dramatic changes. ANZ Royal chief executive Grant Knuckey spoke to the Post’s Erika Mudie about the state of the industry and the opportunities and challenges in Cambodia’s business world.
Could you comment generally about the state of Cambodia’s banking system?
At the moment, I think the sector is pretty healthy. It’s certainly very healthy for the customer, in the sense that the pricing of loans is dropping pretty rapidly, product innovation is continuing and access to finance is improving.
But I think there’s still a financing gap in this market. Essentially, this gap exists between where MFIs have traditionally been lending and where commercial banks will lend down to in terms of size.
What you may see there is some of the MFIs increasing their lending caps — in fact, Sathapana announced that very recently — and I don’t think they’ll be the last. That’s probably quite an attractive market segment too.
Recently, we saw Maruhan, a commercial bank, buy into Sathapana, a microfinance institution (MFI). Do you think Cambodia will see more mergers like this in the future?
I suspect the answer to that question is yes for a few reasons. One is that the micro-finance sector is growing a lot faster than the banking sector as a whole.
Both from a deposit point of view, but in particular from a lending point of view, there’s very rapid growth.
So, yes, I expect more of that type of deal and more interest in the MFI sector. But, frankly, I also expect to see more consolidation over the next two or three years in the commercial banking sector as well.
What I think we will see in the future is not consolidation based on the attractiveness of the sector but consolidation based on an overly competed market. The sector and the regulator need to be cautious and aware of this, and I know they are. The telco sector is an excellent example. It’s over-competed, and very difficult to make an attractive return on investment.
What does a rational company do when it can’t make a return on investment? It stops investing. If you stop investment in telecoms infrastructure, the consumer is the loser in the end. This can happen to banking, and I think we need to be aware of that.
What’s your view of Cambodia’s business landscape, and where do you think opportunities for growth currently lie?
Overall, I’m positive on the outlook for Cambodia from a macro-economic point of view. The three things that give me that optimism are that there is increasingly a plan and sense of direction for the economy, and the development of “hard” and “soft” infrastructure.
Increasingly, we’re seeing the strands of industrial policy and a slightly more directive approach from a government point of view in terms of making attractive the pockets of the economy that are going to accelerate the growth of Cambodia’s economy the most.
The hard infrastructure, which is energy, roads, rail, ports, is now being invested in and is starting to move to the next level. This is now on a path to support the kind of growth Cambodia is capable of, but that’s going to take five years at least.
Then there’s the soft infrastructure, which is equally important but trickier to deal with. The legal part of the soft infrastructure — things like the arbitration centre that was just set up, the credit bureau, Cambodia’s governance framework and laws —are definitely improving.
You must have that to sustain foreign direct investment and to keep people confident and investing.
The biggest concern around soft infrastructure is people. There’s no numerical shortage of labour, but there’s definitely a skill-set shortage and a mismatch between the opportunity and where the skills are.
I think that’s the biggest gap between where we are and where we could potentially get to as an economy.
To contact the reporter on this story: Erika Mudie at firstname.lastname@example.org