It was a fairly slow start to the year for Cambodia’s finance industry, with news that credit growth was slowing. However, the Kingdom’s banking sector was still recording strong growth. The quarter was dominated by a directive handed down from the central bank that required financial institutions to declare they are private entities, resulting in a costly exercise for some big-name firms.
It was revealed that Japanese investors sunk more than $800 million into the Cambodian economy over the past two decades, with much of this investment coming on the back of concessional aid directed to develop and strengthen the country’s trade and industry capacities, according to data provided by the Japanese Embassy.
The data showed Japan’s official development assistance (ODA) net disbursements totalled over $2.4 billion between 1993 and 2014, including $190 million in loans, $1.4 billion in grants and $798 million in technical cooperation.
A new block trading platform was developed to spur interest in Cambodia’s languid stock market by allowing individuals and institutional investors to trade large volumes of shares outside daily market operations, a bourse spokesman said.
Lamun Soleil, director of market operations at the CSX, said the exchange had already developed an in-house platform and would soon submit it to the Securities and Exchange Commission of Cambodia (SECC), the market regulator, for approval. Soleil said the CSX platform would cater to both individual and institutional investors.
International fund transfers to Cambodia through Acleda Bank, which claims to handle a quarter of all inbound fund transfers to the country, decreased slightly in 2016 as a result of lower rice prices, a bank executive said.
In Channy, president and group managing director of Acleda Bank, said inbound fund transfers, including remittances, declined to $1.52 billion last year, from $1.54 billion in 2015. He said the decrease – which bucked Cambodia’s steady 7 percent GDP growth – was largely due to the lower value of international trade in agricultural products, particularly rice.
The National Bank of Cambodia (NBC) released its review of 2016 and outlook for 2017, highlighting the continued large growth of the banking sector while warning that the Kingdom was still vulnerable to external economic factors.
Cambodia achieved its anticipated 7 percent GDP growth on the continued good performance of its garment, tourism and construction and real estate sectors, the NBC said in the report. Foreign direct investment (FDI) continued to flow into the country, reaching 10.7 percent of GDP, it added.
The banking sector experienced strong healthy growth in 2016, though at a cooler pace than in recent years. Bank assets grew by 17.4 percent, reaching $27.8 billion, while deposits grew by 20.7 percent, to $15.4 billion.
Credit growth in Cambodia saw a marginal slowdown last year while deposits continued to increase sharply, a combination that some in the financial sector believe reflects a more cautious lending environment and central bank interventionist policies beginning to take hold.
The NBC announced in its annual report that credit growth had gradually slowed in recent years from 31 percent in 2014 down to 23 percent in 2016. Overall credit issued by banks and MFIs was $16.9 billion last year, while deposits grew by about 21 percent to $15.1 billion, spurred by a low base of customers beginning to use financial services.
The central bank’s decision last March to raise the minimum capital requirements of financial institutions in order to strengthen and stabilise the financial sector has led to an increase in foreign capital flowing into the banking sector, according to industry experts.
In its recently released annual report, the NBC noted that total foreign direct investment (FDI) into lending institutions accounted for nearly a quarter of the $2.15 billion injected into the economy last year. In all, over $539 million in FDI was directed to the financial institutions, a 5 percent increase over 2015.
For the second consecutive year the banking sector has been the top hiring industry in Cambodia, spurred by increased demand for employees by a wave of new banks and microfinance institutions (MFIs), according to an annual report released by online career portal Everjobs Cambodia.
The data, collected by the company’s own internal analytics calculated through the number of job postings and traffic flow, showed that jobs in the banking sector accounted for 11 percent of all listed hiring opportunities.
“According to the National Bank of Cambodia, by July 2016, the Kingdom had already welcomed four more specialised banks and 12 more registered MFIs than during the full year 2015, which explains the increase in job offers within the banking industry during the past 12 months,” the report said.
The Cambodian government was finalising legislation that would regulate the establishment of a corporate bond market, and plans to find a suitable private sector company to pilot the first issuance, officials said.
Speaking during a public consultation on a prakas on public offering of debt securities, Sou Socheat, director-general of the Securities and Exchange Commission of Cambodia (SECC), said corporate bonds would provide a new avenue for companies to raise funds for capital improvements, expansions, debt refinancing or acquisitions.
Kasikornbank, Thailand’s fourth-largest bank by assets, officially opened a branch in Phnom Penh, targeted at Thai investors looking to access loans in the Kingdom and process cross-border transactions, according to a press release.
Bank President Predee Daochai, said that the bank’s potential lies in lending for infrastructure development, including roads, power plants and the real estate sector.
Acleda Bank, Cambodia’s largest financial institution, experienced another windfall year with net profit increasing by 17 percent to $127 million, according to its 2016 consolidated income statement.
Total assets grew to over $4.6 billion, representing a nearly 17 percent surge compared to the previous year.
The central bank announced that all financial institutions were required to declare that they are a “Private Institution” on all company signage and that it must be displayed in appropriate locations in order to differentiate from state-owned institutions.
The NBC said in the announcement that it had observed that some private financial institutions “use propaganda” to deceive customers into believing that they are state-owned institutions as means of pressuring borrowers to repay their debts.
Acleda Bank will have to shell out millions to comply with a Council of Ministers’ decision that the private financial institution must redesign and replace its logo on all company materials and products to differentiate itself from the Ministry of Economy and Finance, a senior bank executive said.
Acleda Bank CEO In Channy said the bank would shelve the mythological golden bird insignia it has used since 2003 when it became a commercial bank for a watered-down logo comprised purely of English and Khmer script.
He said his bank would comply with the government’s demands, which includes dropping the logo on all of its 259 locations in Cambodia, 41 branches in Laos and one in Myanmar. It will also change the logo on an additional 353 billboards across the region and all 1.7 million bank cards that the financial institution has issued.
Less than a week since the government demanded that Acleda Bank change its logo to differentiate itself from state-run institutions, Prasac Microfinance has been ordered to do the same.
In a graduation speech delivered at the Phnom Penh International University yesterday, Prime Minister Hun Sen singled out and threatened the country’s largest microfinance institution (MFI) in terms of assets.
“I want to tell Prasac that they need to change their logo immediately,” he said. “[The central bank] will call Prasac to discuss this and we don’t need to take the time to give them a notice to force them to change.”
The premier threatened to withdraw the MFI’s licence if it did not comply.
Prasac is the second institution to be singled out for a logo change after the government launched a campaign aiming to raise public awareness to clarify that loans are indebted to private institutions.
Mizuho Bank, one of Japan’s largest financial institutions, will join Cambodia’s crowded banking sector by opening its first branch in the Kingdom next month, a bank executive said yesterday.
The Japanese lender, which established a representative office in the Kingdom in 2013, will be the first Japan-based commercial bank to operate a branch in Cambodia.
While Mizuho Bank is not the first Japanese-owned bank to operate in Cambodia, a distinction held by Maruhan Japan Bank, a locally registered subsidiary of Japan’s Maruhan Corporation that merged last year with Sathapana Ltd. to become Sathapana Bank.
Global credit rating agency Moody’s Investors Services has maintained Cambodia’s B2/stable sovereign rating, stating in its latest credit opinion on the Cambodian government that the rating was underpinned by the Kingdom’s credit strengths, specifically its healthy growth prospects and a stable external payments position.
However, it warned of the dangers of Cambodia’s rapid private-sector credit growth, the high level of dollarisation and the narrow economic base vulnerable to external shocks.
According to the Moody’s report, the credit strengths of Cambodia’s rating include the robust growth supported by garment exports, tourism and sizeable foreign direct investment (FDI) inflows. The positives were offset by Cambodia’s “very low” score on government effectiveness, rule of law and the ability to combat widespread corruption.
South Korea’s state-run deposit insurer opened its first overseas branch in Phnom Penh yesterday in a move to sell off the bank and property assets of Korean banks that went belly up in 2011.
The Korean Deposit Insurance Corporation (KDIC) has identified 10 local projects with a total value of $420 million – an amount that represents nearly 78.5 percent of all overseas assets managed by the institution.
Gwak Bumgook, president and CEO of KDIC, said the branch office would help facilitate the offloading of assets by having a dedicated presence in Cambodia that could help speed up the sales process by working directly with potential investors.
Sathapana Bank has pre-emptively removed its signature golden lion logo from all 162 branches nationwide as the private bank aims to deflect government criticism and avoid confusion as being identified as a state-owned institution, a bank executive said.
While a new logo has yet to be designed, Lim Aun, acting CEO of Sathapana Bank, said that the decision was not forced by a direct order by the NBC, which advised in February that financial institutions need to avoid using a lion or riel currency symbol in their logo as these symbols appear in the logos of government bodies.
Aun said no timeline had been set for the bank to complete the logo change.
The Cambodian government has made negligible progress in bringing small- and medium-size enterprise (SMEs) into the regulatory fold, reporting a less than 0.5 percent increase in the total number of companies registered in the last five years – a sign business professionals claim shows that tax incentives aimed at increasing SME compliance and expanding the country’s low tax base have garnered little traction.
According to data in the yet-unpublished annual report of the Ministry of Industry and Handicraft, Cambodia had a total of 39,141 registered SMEs as of end-2016 – just 184 more than five years earlier.
This represents just a fraction of the estimated 530,000 SMEs nationwide, according to Te Taing Por, president of the Federation of Association for Small- and Medium-Sized Enterprises of Cambodia (FASMEC), who cites a lack of incentives and enforcement for the low level of compliance.
Hong Kong financial giant The Bank of East Asia and Sri Lanka’s LOLC announced that they have jointly acquired a majority stake in Prasac Microfinance, Cambodia’s largest microfinance institution (MFI) by assets, in what could be the largest acquisition of a Cambodian lender to date.
According to a joint company release, The Bank of East Asia (BEA) and LOLC acquired a controlling share of Prasac by purchasing minority stakes held by Dragon Capital Group Ltd, Belgian Investment Company for Developing Countries SA (BIO) and the Netherlands Development Finance Company (FMO).
The deal was valued at $186 million by Sri Lankan media.