By Emily Frost – email@example.com
The finance and banking sectors of Cambodia are undergoing a phase of substantial growth, which introduces many previously unexperienced challenges; it will be up to the country’s finance and banking leaders to steer the way beyond these challenges and into the next stage of development.
In July of this year, the country’s central bank, the National Bank of Cambodia, hosted a macroeconomic conference at which industry leaders met to discuss the needs of the rapidly growing finance and banking institutions of Cambodia. Issues such as sustainability, inclusive economic growth and risk management were key topics. The banking and finance sectors—in particular areas involving microfinance—have grown rapidly over the past few years, with bank deposits soaring year after year from 2008 onwards. Microfinance-sector borrowing has increased substantially since 2008, with 800,000 recorded customers in 2008 and 1.6 million customers by 2013. Further to this, loan disbursements gained by 14 percent in the first quarter of this year, reaching 200 million USD. Meanwhile, nonperforming loans have remained at a low level, below one percent, according to the National Bank of Cambodia.
Founded in 2002, Vattanac Bank is a commercial and retail bank based in Phnom Penh. The bank operates branch offices in Phnom Penh and Siem Reap and offers a wide range of banking and financial services and products. Further to this, the bank has an established automated-teller network, with ATMs located in several locations across Phnom Penh and Siem Reap. Vattanac Bank has driven the adoption of banking services amid a growing economy, and the bank has demonstrated a consistent commitment to providing a broad and comprehensive range of commercial-banking services that have helped grow the economy further. The bank has additionally driven growth in the area of technological innovation, providing reliable electronic-banking services to its growing customer base and thereby facilitating increased convenience and accessibility to commercial-banking solutions. The bank furthermore handles a wide range of import- and export-trade services and also facilitates VISA debit and VISA credit-card banking services for its customers.
The president of Vattanac Bank, Madam Chhun Leang, has led the bank from strength to strength and ensured that the bank operates with a core set of principles centred on providing stable financial and banking services and product solutions for the bank’s clients. Vattanac Bank is operationally organised around a culture that prioritises providing services, striving to meet customer needs in innovative and increasingly efficient ways at all levels. By providing new products and services to meet the changing demands of the Cambodian banking client base, Vattanac Bank has demonstrated itself to be a leader in this area. By applying determination and diligence in providing effective and innovative banking solutions to customers, Vattanac Bank has become a popular choice for banking in Cambodia. In particular, the bank has applied an increasing amount of effort towards the provision of electronic services—improving convenience and access for its growing retail-customer base. By offering a wide range of loan- and deposit-account solutions to its customers, Vattanac Bank has become a stand-out in Cambodia’s retail-banking sector. Furthermore, the bank provides a wide range of additional services to meet the needs of its clients—including payroll management, escrow processing and management, and foreign-monies services such as wire transfer through SWIFT and Western Union.
In addition to the bank’s pioneering and award-winning work in the areas of retail and commercial banking, Vattanac Bank operates corporate social-responsibility programmes in order to balance the interests of the bank with that of the local and wider communities they serve. Through a variety of programs and policies, employees are encouraged to volunteer their time to community social-development projects. Furthermore, Vattanac Bank plays a prominent role in upholding the standards of corporate governance for the banking sector within the local region, both Cambodia and Southeast Asia. In particular, Vattanac Bank was recognised as a leader in the area of good corporate governance in 2013, winning an award in this category from Capital Finance International magazine.
The Cambodian banking and finance sectors have benefited from increased cash flows and a stimulated economy recently; however these changes are accompanied by new risks. These risks need to be effectively managed to keep the economy on a stable and sustainable course of growth. The Southeast Asian economy is still exposed to the risk that funding from abroad may contract, especially as tapering of quantitative easing continues in the US. Cambodia needs to be prepared for future external shocks so as not to be set back from the excellent progress made over the past few years. Preparing for volatile conditions, liquidity snaps and credit crunches should be incorporated into the everyday workings of banking and finance institutions. Regulators and economic experts are at this stage suggesting that microprudential policies should be introduced and incorporated into banking activities. Measures would include, for example, caps on loan-to-value ratios to provide a more thorough lending-risk assessment prior to a mortgage approval. A further suggestion is to limit debt-to-income ratios in order to manage credit exposures more effectively. By incorporating these types of sensible and prudent measures into the banking system, restrictions are put in place so as to prevent unmanageable risks of excessive size and toxicity building up on bank balance sheets. Liquidity and credit-risk management will then be naturally built into the structure to prevent future global credit crises such as those experienced in 2007 and 2008.
One major hurdle that needs to be overcome in the Cambodian banking and financial sectors is that of improving the general robustness of and confidence in the economy. In particular the financial soundness of borrowers is a real concern for bank owners and managers. The country’s banking sector has historically operated under somewhat informal terms, and this has proved risky and damaging in certain cases in the past. A major stride being made towards resolving this problem is a massive improvement and overhaul in the system of financial reporting—by continuing with the development of formal channels, checks and procedures, the industry will have one less barrier to carrying out business and growing over the coming years. Currently the government and regulators of Cambodia are discussing the possibility of enforcing periodic audit accounting of companies so as to help increase the robustness of the financial system and to allow the capacity for borrowing to expand. This will allow funds to flow more freely to where they may be needed to drive economic growth and business expansion.
Further to this, to build the country’s economic growth, proper emphasis should be placed on disbursing more risk-manageable loans in Cambodian riel in order to reduce the probability of becoming a dollar-dependent economy. In the past, this dollar dependence has meant that enterprises were left at the mercy of external fund and loan providers and forced to rely on sources of finance from outside Cambodia’s borders—exposing participants to a whole host of external market risk factors. Although a currency-mismatch risk is a concern for riel-based loans, the benefits of credit access within the nation’s borders will outweigh this risk in the long run. Credit in riel will facilitate the ability of funds to reach a wider span of consumers, such as in the substantive rural sector that crucially needs financial support at this time of economic growth. Funds need to trickle down through the economy to small businesses in far-reaching provinces that will help develop and add value to the vital agricultural sector of Cambodia. It is of critical importance that farmers, as the country’s largest economic unit, have the ability to purchase and modernise much-needed machinery, such as water pumps and harvesters, to keep the industry moving forward and drive an expansion in production volumes.
According to the National Bank of Cambodia, over the first half of this year, Cambodian banks have experienced a 9.3-percent rise in lending. The data indicates that as of June 2014, Cambodia’s 35 commercial banks have lent a total of 8.09 billion USD to bank customers, a gain of 9.3 percent against the 7.4 billion USD reported for the six-month period at the end of last year. Going forward, the role and growth potential of the banking sector will depend on the ability of government and industry leaders to work towards developing infrastructure to meet the evolving demands within the Cambodian economy. In particular, more focus and solutions will need to be provided to the vast rural areas across the country in addition to meeting the changing needs of small to medium enterprises, which are springing up at a rapid pace and fuelling growth further. Vattanac Bank will play a key role in this phase of development for the Southeast Asian country, and the ability of the bank to provide new and innovative technological solutions has been driving banking services forward towards better meeting customer needs. In this sense, managing the balance between face-to-face interactions with that of electronic-interface solutions will be a delicate one that Vattanac Bank should approach carefully and considerately as they have to date. A further important challenge will be the political unrest within the country. Labour and wage laws are undergoing a phase shift and will no doubt underpin the ability of the financial-services sector to develop into a stronger, more efficient industry. The evolving regulatory climate within Southeast Asia and across the globe will also have to be effectively risk-managed to keep growth on a steady course, and Vattanac Bank’s ability to incorporate regulatory changes into their operations will help development move along sustainably.
Many market participants are currently speculating that the Southeast Asian region will experience considerable consolidation of the banking sector over the coming years. Based on its performance to date, Vattanac Bank should be in a position to capitalise on this potential and extend and deepen its presence across the region as it continues to effectively prioritise meeting customer needs.