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Logo of Phnom Penh Post newspaper Phnom Penh Post - Banks look to untapped savings

Banks look to untapped savings

An IMF report has served notice on the banking sector of 'increased

risks and exposed weaknesses', but banks are confident

under-the-mattress deposits remain to be had.

Photo by:

Heng Chivoan

(From left) ANZ Global CEO Mike Smith, NBC Deputy Governor Neav Chanthana, Royal Group Chairman Kith Meng, and Wing Managing Director Brad Jones at the launch of ANZ’s mobile banking service. ANZ Royal CEO Stephen Higgins (background) looks on.

AGAINST a backdrop of global economic turmoil, the honeymoon is over for the local banking sector, according to recent financial reports, but market leaders are confident their foundations are firm enough to see them through periods of falling growth and likely economic stagnation.


Since early this decade, the Kingdom's banking sector has enjoyed a period of relatively easy growth, buoyed by economic expansion, political stability and the gradual introduction of benchmark regulations by the National Bank of Cambodia.

However, a report released last week by the International Monetary Fund (IMF) sounded a warning about liquidity and the current level of non-performing loans in the country's highly dollarised banking system, saying that the global crisis had "increased risks and exposed weaknesses" - especially among those banks over-committed in the Kingdom's loosely regulated property sector.

"Growth is slowing, liquidity is tightening, and, as a result, banks' balance sheets are coming under strain," the report states.

In terms of gross domestic product, the IMF predicted a growth rate of just 4.8 percent in 2009, down from an estimated 6.5 percent in 2008 and 10.25 percent in 2007. But although the IMF says the global downturn has "exposed vulnerabilities" in the sector, the country's leading retail banks hope to weather the storm, saying there is still a large reservoir of untapped growth to balance the slowdown.

It has been estimated that there is still $1 billion to $1.5 billion that is sitting under the mattress.

In Channy, president and chief executive of ACLEDA Bank, who has presided over a rapid expansion of retail banking since ACLEDA was granted its full commercial banking licence in December 2003, said that the company had gained enough traction with customers to sustain it through the tougher times ahead.
"In 2008, ACLEDA became the top bank for domestic deposits. To me, there is strong growth and strong public confidence in ACLEDA," he said, adding that the company's after-tax profits had increased over 2007 levels.

In Channy also said that the physical proximity of the bank to most of its customers - it has 226 branches in every major district and some communes - has generated a good deal of trust among its customers. "We have both grown together, our customers and ACLEDA bank. This is the reason I feel confident that we are safe," he said.

ANZ Royal Bank, the local joint venture between Australia and New Zealand Banking Group (ANZ) and Royal Group, which has pioneered electronic and internet banking since it was formed in 2005, is also confident the fall in growth will be balanced out by the large reserves of cash that remain outside the banking system.

"Growth will certainly be slower than people anticipated six months ago, in common with pretty much every other country in the world," said ANZ Royal CEO Stephen Higgins. Despite the Cambodian market contracting in 2008, he added that there were "still opportunities" to be had. "It has been estimated that there is still $1 billion to $1.5 billion that is sitting under the mattress," he said. "Even if Cambodia doesn't grow overall, if you can capture some of that money, there are significant opportunities for growth."

Flying forward

Last month, ANZ Australia launched the Kingdom's first mobile banking service, known as WING, which the company hopes will push forward the frontiers of retail banking in Cambodia, unlocking hitherto untapped markets in rural areas. As a branchless payments service that allows customers to send money and make person-to-person transfers from their mobile phones, WING representatives are confident the technology can also help alleviate rural poverty, as well as proving a viable business enterprise.

"WING will help improve people's livelihoods and reduce poverty by increasing their access to banking services," said ANZ Chief Executive Mike Smith at the launch of the new service on January 20. He said that mobile banking will open up large portions of the Cambodian market to banking services, allowing rural Cambodians access to banking and a route out of cycles of rural subsistence.

"Access to financial services and the ability to save and transfer money is a significant challenge in Cambodia.... By enabling customers to create savings accounts, we can help break the cycle of subsistence living," he said. "WING will help people make secure payments and create sustainable communities, and for ANZ it's a sustainable business opportunity, so it's a real win-win."

Brad Jones, managing director of WING, said that being on the frontier of retail finance in Cambodia brought its own unique challenges - not least, the ingrained distrust of formal banking in parts of the country where ruthless moneylenders once held sway.

"This is one of the big challenges to starting a business that offers branchless payment services," he said, adding that a concerted education and marketing program would be launched shortly to familiarise rural customers with the technology and soften ingrained suspicions.

According to Jones, most WING customers' first point of contact will be the company's local salesman - called a WING "pilot" - who will help recruit customers locally. "We're training them, and they're earning an income to provide these services, so WING will become very much a part of the community," he said.

In Channy said that ACLEDA was also looking at the  new technology as a way of complementing its presence at the district level, and expected it would point the way forward for the industry as a whole.

"Banking branches located physically in the communities are not enough. There are about 14,000 villages [in Cambodia], and to reach them, we would need to add more and more offices," he said. "We will need other facilities to help them, including electronic and mobile banking.



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