Despite a crowded banking sector, Advance Bank of Asia CEO Madi Akmambet says his bank can compete with the largest lenders in Cambodia as it battles to reduce non-performing loans
[THE] top four is a stable group, and we realise that they will ... be major players.
By Nathan Green
When Kazakhstan-based investment bank Visor Group bought Advanced Bank of Asia (ABA) in 2007, it inherited some problems in terms of its lending portfolio. What is your strategy for dealing with your non-performing loans (NPL), among the worst in Cambodia?
I wouldn’t say it’s a big problem. Of course we are facing an issue with NPLs, but every bank in Cambodia faces this issue now as a result of the global downturn and the structure of the domestic economy.
Our NPL ratio was quite high in 2007, around 25 percent, and we decreased it to around 12 to 13 percent last year. But it’s a question of economies of scale.
We had a small loan portfolio, and there were a few – and only a few – loans that could be classified as doubtful or bad loans.
We created allowances, provisioning, in accordance with National Bank of Cambodia (NBC) requirements, but this year we recovered a major part of these NPLs and expect to decrease our NPL ratio to around 7 percent.
ABA is a mid-sized lender, 15th in terms of deposits out of 24 commercial banks last year. There are now 28 banks. Can that many survive?
It’s a quite-competitive market, but it is also highly concentrated, with the top four capturing around 65 percent of market share, in terms of total assets.
This top four is a stable group, and we realise that they will continue to be major players, at least in the near future, but it is not so clear that all the mid-sized banks will be strong players in the market.
If you look at the results from the first seven months of this year, not all banks are growing this year; some are decreasing.
In terms of ABA’s branch network, it has expanded from one branch in 2007 to eight branches. Is it fair to say ABA has an aggressive expansion policy?
When the Visor Group bought ABA in 2007, it was a one-branch bank.
We had a strategy to develop the bank more aggressively, which we did by expanding our branch network because that is a channel to deliver our products and services to the market.
We will continue this strategy, and in the most optimistic scenario we will be able to open three branches per year over the next three years.
Aside from new branches, what is ABA’s strategy for growth?
Our short-term strategy is first of all to be a profitable bank.
As you can see in the NBC [2008 banking supervision] report, we had some losses last year and the year before, but that was just because of branch network expansion, the global downturn and its impact on our loan portfolio.
In the mid-term, when we have improved our key financial indicators and are growing, we will apply to be assigned by credit rating agencies, and I think we can then go to the international capital markets.
There are a lot of financial instruments, a lot of ways to attract funds. We expect also that the Cambodia Stock Exchange will be launched.
It’s always a good opportunity to be listed in any stock exchange.
So what is the bank’s long-term goal?
Over the next three or four years, say by the end of 2012, our strategy is to be recognised within the top 10 banks of Cambodia, with market share of 4 to 5 percent – our market share is now only around 1 percent.
We want to be recognised as a stable, mid-sized bank capable of offering a full range of services to Cambodian customers.
We are positioning ourselves as a universal bank, but one focusing on SMEs [small and medium-sized enterprises], because SMEs are the main growth driver of the economy, contributing 65 percent to GDP, 85 percent of the workforce, 93 percent of all enterprises.
Retail is the secondary priority, and we will offer new products for the retail sector.
The corporate sector is still a priority, but we are focusing on being selective, taking a target market approach.
How do you plan to find viable customers among SMEs?
A major part of the SME sector is the agriculture sector, which is not stable, and they sometimes have difficulty with finance.
But there are a lot of other sectors, too, including wholesale and retail trade, hotels, restaurants and other services, tourism and construction.
We are not saying we will cover all SME clients. We have our credit underwriting approach, our analysis of the credit worthiness of borrowers, and we will use and implement international practices. We will see where we can invest and where we cannot.
You are in the process of rebranding. When can we expect to see the new brand and what will it tell us about ABA?
I don’t want to give an exact date, but in the next month or so.
We will keep our name – we will still be the Advanced Bank of Asia, but we will use the short name ABA Bank in the market.
We will also become more aggressive with PR, with advertising on TV and radio and in newspapers to tell our Cambodian customers, the business community here, that yes, we can offer new products, that we can offer higher quality services.
It is not just a new name and a new logo; the rebranding has a strong foundation with some new products in the pipeline.
What products are these?
Since Visor bought this one branch bank, we have developed ABA in terms of infrastructure, we have upgraded our cost system, we have installed a card-processing centre for Visa and Mastercard.
We launched Mastercard in May this year, and we are in the process of testing and certification with Visa to launch in November or December.
We have also launched Internet banking, but we have not promoted it properly because we stopped our advertising when we began preparing the rebranding.
Our functionality will be the largest on the market; we can offer outwards remittances abroad, which other banks cannot, at least not outside of their bank network.
We also launched a new SME loan policy on the first of June, but again there was no promotion. Despite this, we have already seen demand for this product grow.
We will improve our deposit products as well, not only in terms of interest rates but also in terms of being flexible to meet client needs.
There is a lot of room to grow, to develop our product line, our client relationship services, our methods, our customer care, call centre, sales department. We are working on the whole package.