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Expanding the middle income group

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Campu Bank’s Phan Ying Tong at the opening of Campu Securities last year. Photograph: Stuart Alan Becker/Phnom Penh Post

The Country Manager for Cambodia Public Bank says developing the Cambodian middle class is one of the best things Cambodia can do for the prosperity of the whole country.

Campu Bank’s Phan Ying Tong, who formerly served as chairman of the Association of Cambodian Banks (ABC), said he believes the middle class will become the backbone of the economy.

“The disparity is still high between the rich and poor,” Phan said. “Building up the middle income group will be a long lasting strategy for the economy. All stakeholders should concentrate now on building the middle income group of people so they have purchasing power and they can be the backbone of the economy.”

From January through September this year, Campu Bank recorded a 37.5 per cent growth in pre-tax profit of $28 million, up from $20.6 million during the same period of 2011.

Comparing the same time periods, customer deposits increased to $875,489 over last year’s $743,455, a 17.8 per cent growth. Campu Bank loans in the commerce sector increased by 31 per cent and by 24.5 per cent in the services sector.

Phan said the Cambodian government could put greater emphasis on developing the middle income segment of the population, possibly with help from the International Monetary Fund and the Asian Development Bank, with a principal guarantee scheme that would help mitigate risk and provide loans to the agriculture sector, for example.

“Business people who don’t have much collateral but do have a viable business plan could get a guaranteed loan. I’m sure this kind of scheme would help the small and medium sized enterprises (SMEs),” Phan said. “This has been planned by the government and we are waiting for the results.”

Such a principal guarantee scheme would enable banks to mitigate the risk and provide the loans, Phan says.

“Right banks find it difficult to provide loans to the middle income group, which has a huge need for financing. They always say they are not able to get loans because of a lack of collateral that is acceptable to the banks, and the banks cannot give the loans because the risk is not mitigated. This kind of principal guarantee scheme addresses the issue from both sides.”

Phan said the idea grew as a result of Prime Minister Hun Sen’s vision for a million tons of exported Cambodian rice in 2015, as a way to help small farmers have the means to help achieve it.
Another key to the strengthening the middle class is human resources development, Phan says.

“I do believe, not only for banking sector and other sectors, that Cambodia has an immediate need to develop human resources to sustain this growth through education, vocational schools, technical training. These are very important.”

As an ABC member, Phan is involved in facilitating assistance from the Malaysian Institute of Banks to help develop education programs for the finance industry.

“We do certification so we can train enough people for the banking industry, instead of people pinching staff from each other. The long-term solution is to train and produce enough people for the industry.”

Phan says the idea is to create a syllabus and provide certification in the financial services industry, possibly even degree courses up to the chartered banker’s level.

“We will get people from the Malaysian Institute of Banks to come to Cambodia and help us. They are experienced and have done this for many years. The ABC is looking at this now.”

Title deeds for housing loans are another challenge facing the banking sector, according to Phan.

“If you look at the number of houses that have been added to the city and surrounding areas, you can see more and more people coming to Phnom Penh for work, and they need accommodation. I think many banks will capitalise on the housing loans, but one of the challenges is most of the houses have no individual title deeds,” he said.

“One of the important documents is the certificate of title, which will very easily facilitate the transaction of buying and selling. There is a bit of a high cost to land titles, and ‘soft titles’ are high risk and less secure. Banks can secure the lending position with certificates of title and on the other hand people can get protection for their property. I think it is good if this area can be improved,” he said.

The forecast for economic growth in Cambodia was from 6 to 7 per cent, along with a 20 per cent increase in tourism, Phan said.

“I think the economy is still quite positive. Japanese investors are coming into the Special Economic Zones.”

He added that the IMF, the ADB and the National Bank of Cambodia were concerned about the risks associated with very strong credit growth. In the midst of rapid development, banks need to be careful on giving credit.

“Credit given for productive investment purposes is fine. If it is going into speculation, I think it will be dangerous. Excessive lending could lead to an increase in bad loans. I think the banking sector will have to control the risk.”

Phan said Campu Bank had only two per cent bad loans, much lower than the industry standard.

To contact the reporter on this story: Stuart Alan Becker at stuart.becker@gmail.com

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