As the financial sector expands, more money is flowing into a more complex economy. Loans are increasing along with concerns about long-term risk. In this week’s CEO Talk, Chea Serey, a long-time official at the National Bank of Cambodia who was appointed to the position of director general late last year, discusses aspects of the changing economy with the Post’s Chan Muyhong.
How is Cambodia’s financial sector progressing at the moment?
The banking sector has progressed very well. Every year, we have seen an average 30 per cent increase in deposits. More deposits mean a higher level of trust from people. Last year, however, deposits rose only 12.5 per cent amid the election and political instability. Still, this reflects the trend that more and more Cambodians are joining this formal sector.
There are an estimated 2.3 million people with bank accounts, out of a population of 14 million. If we can get a ratio of 10 million out of 14 million, that will be a good thing. We have more commercial banks, but they are amassed only in crowded urban areas.
Credit is also increasing. Access to financing in Cambodia has become much eaiser, for one reason: the existence of more microfinance institutions, which are located almost everywhere throughout the country, meaning more business activity is happening.
Our financial sector has just started. We are behind other countries in the region, but it doesn’t mean that we are weaker than the others. We have just started to run, but we have been running quite fast through these years.
In 2013, loans increased 25 per cent compared to the previous year, while the rate of savings increased to only 12.5 per cent. Does this number imply risk in the financial sector, and has the central bank taken steps to tighten lending?
This number does not say anything. The number of loans reflects the level of the whole economy. When a country’s economy is rising, usually more capital is needed for investment. So companies borrow more money from the bank to expand their operations. This is simple.
In our country, we see very high growth, but the question is from what base we are increasing. We have to acknowledge that we have just recovered from wars. We need capital to rebuild infrastructure and so on, which requires more loans from the bank.
Loans for real estate have also noticeably increased. Could this pose any long-term problems for the economy?
Our young people now tend to want to live independently from their parents. This mindset of owning a house has become more common among new couples. So they can achieve it now because the bank offers loans. Housing loans have risen recently, but I am not very nervous about this, because the question we need to ask is whether they are buying to live or to speculate.
What we fear more is people speculating in real estate. But so far, more people are using the loans to get a house for their family, they will not risk losing their property to the bank. This is a good thing happening to Cambodians.
You have to understand that before 2003, not many people deposited their money in the bank. People started to get their savings and invest them in houses and land. That is why we saw the price of property rise later.
What happened in 2008 was not a bubble bursting, because property values at that time increased and have not come down yet. The property values remain the same, it’s just that there is not as much buying and selling activity as in the past five years.
Looking at the rest of 2014, what is the outlook for the banking sector?
So far we have seen widespread access to loans among the people. What we need to do is keep this momentum, meaning the good quality of our credit. We now have the Credit Bureau, where details and history of clients are being kept and used by the banks. We want to raise awareness that the bureau is a very important tool for them to access loans without necessarily using collateral. We also want financial institutions to be transparent to their clients about the risks regarding loans.
Are you concerned about criticism that you obtained your new position late last year because of your father, who is the governor of the bank?
It is not something new. I will leave others to judge me on this, on whether I am qualified or deserve the chair. This is inevitable. I am the daughter of the governor, and this is the fact I cannot deny.
But what is more important is whether I can do the task on my desk or not, whether my colleagues approve of my work or not, and whether I can contribute to the improvement of my institution or not. If I cannot do it, I think I do not deserve the chair and I am more than willing to resign from this position. I will leave you to judge.
This interview has been edited for length and clarity.