Economy boosts banking in 2011

May Kunmakara with additional reporting by Diana Montano
Wednesday, 11 January 2012
The Phnom Penh Post

Growth was the watchword in the Kingdom’s banking sector last year, with deposits, loans and profits – and the number of institutions – climbing, insiders said yesterday.

A rebound in the Cambodian economy following the global financial crisis had led to growth in trade, the agriculture sector and the once-lagging construction industry, which helped to boost the need for financing, they said.

“Our economy performed very well, which led to the creation of new businesses and demand for loans,” So Phonnary, executive vice-president at ACLEDA Bank, said yesterday.

She also noted the growth in tourism and garment and textile exports as reasons for the sector’s strong year in 2011.

ACLEDA’s total loans reached more than US$1 billion last year, up 34 per cent from $744.4 million in 2010, according to So Phonnary.

At the same time, deposits had totalled $1.47 billion in 2011, a more than 60 per cent increase from $911.2 million the year before, she said.

Profits at the bank climbed to $43.7 million last year, compared to $26.4 million in 2010, So Phonnary said. The ratio of non-performing loans fell to 0.23 per cent in 2011 from 0.5 per cent the year before.

ANZ Royal Bank chief executive Stephen Higgins said via email that his company had also generated a strong performance, with NPLs having fallen to very low levels.

“2011 was a very good year for ANZ Royal, with profit significantly up on 2010,” Higgins said, although he did not disclose specific figures.

Han Peng Kwang, general manager of HwangDBS Commercial Bank in Cambodia, said his firm’s total loans soared 180 per cent year-on-year to US$18.2 million. He attributed the increase to overall business growth and a recovering real-estate sector.

“Our loans grew significantly due to strong demand from the public for business expansion and working capital, and also to purchase residential houses,” Han said.

He did, however, note a decline in deposits at HwangDBS in 2011. Total deposits fell 21 per cent to $10.4 million on customer withdrawals, Han Penh Kwang said, but he did not offer reasons for those withdrawals.

The increased banking activity last year also attracted new banks to the country, bringing the total number of commercial institutions to 33.

Bank of China and Industrial and Commercial Bank of China, Mega International Commercial Bank and Taiwan Co-operative Bank, from Taiwan, and the Military Commercial Joint Stock Bank of Vietnam began operations in the Kingdom.

Insiders yesterday disagreed on whether the Cambodian market could support such a large number. ANZ Royal’s Higgins called for consolidation, but others said there was still room for growth.

“I believe market pressure is not so strong as to compel smaller banks to merge,” Hiroshi Suzuki, CEO and chief economist at Business Research Institute for Cambodia, said.

Despite the sector’s positive gains, the year wasn't perfect for the Kingdom’s banks. ACLEDA suffered credit rating downgrades from both Moody’s and Standard & Poor’s in September and November respectively.

In September, Moody's changed its outlook for Cambodian Public Bank to “negative” from “stable”.

But ACLEDA chief executive officer and president In Channy said yesterday the bank would look to strengthen its position in 2011 through better loan quality, higher profits, increased shareholder capital and a focus on market niches.

The bank aimed to expand in underserved markets such as those in the rural provinces of the Kingdom, In Channy said.

He did note that ACLEDA would be vulnerable to ratings downgrades if Cambodia’s sovereign rating were also lowered, which S&P did last year.

“The institutional strength [of ACLEDA] can be influenced by the country’s sovereignty rating. We are subject to a decrease in rating if the country rating also decreases,” In Channy said.

As for 2012, bankers saw different outcomes for the sector.

HwangDBS’s Han Peng Kwang said increased competition and uncertainties in the global economy would weigh on Cambodia.

ANZ Royal’s Higgins said he was optimistic that the industry would again deliver strong results.

“The outlook for the banking sector is still quite positive, reflecting the underlying strength of the economy,” he said.