With the economy now well into the third quarter of a year that economists predict will experience growth upwards of five percent, the recovery being experienced by banks is mixed.
While the sector’s heavyweights report a steady rebound in both lending and deposits, some smaller players say that stern competition in a heavily saturated industry is impeding their ability to make any noteworthy profits.
“At this time we’re still in the red,” said Han Peng Kwang, senior vice president of Hwang DBS, adding that he hoped the bank would break even for the first time by the end of the year.
Since operations started at the bank in 2009, interest rates on deposits fixed over 12-months have come down from 8 percent to 3.25 percent, a measure that most outfits in the sector have chosen to take in order to stop expenditures from eating too far into their profits.
Although Hwang’s loan portfolio has doubled since the beginning the year to $4 million, like other smaller banks in the country, Mr Han said that a reduction of the central bank’s reserve requirement to 8 percent from 12 percent currently would help free up funds for handing out more credit.
“The banking industry is now so competitive, more and more banks are coming,” he said. Last year a string of foreign banks ranging from South Korea’s Kookmin Bank to Vietnam’s Sacombank entered Cambodia’s banking sector.
Mr Han said that in the current environment smaller banks are obliged to carve themselves out a niche within the loan market. And some could even risk being downgraded to specialized banks come the end of the year if they do not meet national regulations requiring a minimum capital outlet of about $37.5 million, he said.
“We want to grow our bank…but the business opportunities in Cambodia are very sluggish,” said a director at CamKo Bank, who spoke on the condition of anonymity per company policy. “We don’t see any positive sign for a recovery soon.”
He added that growth in terms of both credit and profits had not bounced back as expected. The bank currently concentrates uniquely on property loans, which have failed to reignite since the crisis took hold in late 2008.
Despite concerns at the lower end of the market signs across the sector as a whole appear more promising.
Bank deposits grew by 31 percent in the first two quarters of the year compared to the same period last year, while loans experienced an increase of 14 percent.
Although banks have previously said that rising deposits had reduced their profits, most institutions have now taken action by reducing interest rates and are looking at lending to companies in sectors where optimism has been renewed: namely in trade and agriculture.
At the Foreign Trade Bank, the country’s fifth largest bank in terms of deposits, lending has increased by 11.4 percent to $117 million in the first seven months of the year, while deposits have gone up by 9.7 percent to $248 million.
“We are reasonably optimistic about the outlook for the business environment, especially for the agribusiness, service and infrastructure related sectors,” said Gui Anvanith, general manager at the bank.
Baburam Zyawali, chief financial officer at Advanced Bank of Asia, which changed management in 2007 and has steadily been growing since, said that confidence among the private sector was bouncing back strongly.
The bank’s loan portfolio grew by about 75 percent to $47 million in the first six months of the year, while deposits also experienced rapid expansion increasing by 90 percent to $95 million over the same period.
“Things are definitely improving since the crisis,” Mr Zyawali said.
“The growth coming from the recovery is coming form all sectors,” said In Channy CEO of Acleda Bank.
At Acleda profits in the first seven months of the year so far are in the region of $11 million, compared to a total of $9 million during the whole of 2009.
The bank’s loan portfolio has increased by 16 percent from the beginning of the year to $632.4 million.
Bankers say that new growth opportunities will probably come from companies operating in the import and exports sectors as well as in agriculture, two areas of the economy the government is also hard pushing.
In a note to its clients this week, UBS highlighted Cambodia along side Vietnam, Thailand, Czech Republic, Hungary and Solvak Republic as having increased exports by more than 25 percent in the last decade.
“Aside from the shock of seeing Cambodia in the sample, the country has quietly established itself as a ‘mini tiger’ in textile processing and assembly, a fact generally overlooked by most investors including ourselves,” Jonathan Anderson, an analyst at UBS, wrote in the note.
But until investors heed such viewpoints, heightened liquidity in the sector will continue to curb profits, said Dieter Billmeier, vice president at Canadia Bank.
Canadia had increased its loan portfolio to about $450 million up from $360 million at the end of 2009.
Though “the gap between loans and deposits is still wide…deposits are still growing faster than loans,” Mr Billmeier said. “We are very bullish for the year 2010.”
At ANZ Royal Bank, loan disbursals have also increased by about 15 percent in the first two quarters of the year.
Steven Higgins, CEO at ANZ Royal, said lending to sectors that took the biggest hit during the crisis such as property has given way to areas of the economy with renewed hope such, as trade and services.
Whereas the ANZ Royal loan portfolio consisted of 20 percent property loans prior to the crisis, it now consists of just 10 percent.
But “it’s not back to the level it was pre-crisis which is understandable,” Mr Higgins said.