An Overview of the Banking Sector of Cambodia

Charles Vann Executive Vice President Canadia Bank Plc.

Content „ „ „ „ „ „ „

Introduction Economy of the World Economy of Cambodia Banking Sector of Cambodia SWOT Analysis Recommendation Conclusion

Introduction „

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Cambodia is situated on the southwestern part of the Indochina peninsula. It shares a 2,615km border with: „ Vietnam: 1,270 km „ Thailand: 805 km „ Laos: 540 km Cambodia began to return to a period of peace in 1993. It became a member of ASEAN in 1999 & WTO in 2004. Population (2008e): 15 million.

Economy of the World „

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Economy issues in the first semester of 2008: Mortgage Loan Crisis, Depreciation of USD, Petroleum Price, Inflation etc. GDP increase in 2008 (forecasted): „ USA: 1.3% „ E.U: 1.7% „ Japan: 1.5% „ China: 9.8% „ India: 8% „ ASEANs: 5.7%

Economy of Cambodia „ „ „ „ „ „ „

GDP growth: 10% (2004), 13.4% (2005), 10.8% (2006), 10.1% (2007) & 7.2% (2008 forecast) From 2005 to 2007, the economy grew by average of 11.3% per year. GDP per capita: USD 597 (2007) Inflation: 4.4% (2006) to 7.1% (2007) International Reserves: USD 2.2 billion (June 2008) Foreign Exchange: Stable Engines of growth: Garments, Tourism, Construction & Agriculture

Banking Sector of Cambodia (1) „ „

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Banks are very liquid (loans to deposits ratio is about 65%) Bank resources are mainly short-term: almost all deposits and loans are short-term, less than 1 year and in USD Public confidence in the banking system is recovering The total assets grew from US$1.4 billion in 2005 to US$3.5 billion in 2007. In 2007, Loans and Deposit increased 75% and 77%, respectively.

Banking Sector of Cambodia (2) Financial Depth and Outreach 2005 Total Loans (millions US$)

2006

2007

594.00

893.60

1,695.45

Loan Growth (%)

26.00%

50.40%

89.70%

Loans as % of GDP

10.80%

12.40%

19.71%

906.90

1,312.00

2,469.84

Deposit Growth (%)

14.10%

45.00%

88.00%

Deposits as % of GDP

16.50%

18.20%

28.72%

Loans as % of Deposits

65.50%

68.00%

69.00%

% Cash of Total Deposits

38.00%

35.00%

31.00%

Number of Loans per 1000 people

36.00

44.00

57.04

Number of Deposits per 1000 people

24.00

28.00

41.94

Number of FIs per 1000 people

0.20

0.30

0.28

Number of branches per 1000 people

2.20

6.70

8.35

Total Deposits (millions US$)

Source: NBC & MEF

Banking Sector of Cambodia (3) Number and Type of Financial Institution 2004 Number of Banks

2005

2006

2007

17

19

20

24

12

15

16

20

Foreign Banks

3

3

3

3

State-Owned Banks

2

1

1

1

13

16

16

17

Leasing Companies

0

1

1

1

Insurance Companies

4

4

4

7

Private Local Banks

Licensed MFIs

Source: NBC & MEF

Banking Sector of Cambodia (4) „

As of June 2008, the Banking Sector of Cambodia is composed of: „ 22 commercial banks: 3 foreign branch banks and 19 locally incorporated „ 7 specialized banks: 1 state owned (Rural Development Bank) and 6 local privately owned „ 2 representative offices: Standard Chartered and Vietnam Bank for Agriculture and Rural Development „ 17 licensed MFIs and 26 registered MFIs

Banking Sector of Cambodia (5) „

Legal Framework: to support the reforms, legislative framework has been improved. New laws and regulations were issued in anticipating the banking restructuring. „ Law on the Organization and Functioning of NBC (1996) „ Law on Banking and Financial Institutions (1999) „ Law on Negotiable Instruments and Payments Transaction (2005) „ Law on Anti-Money Laundering and Combating Financing of Terrorism (2007) „ Law on Financial Lease (draft)

Banking Sector of Cambodia (6) „

Financial Sector Development Strategy 2006-2015: Banking Sector „ Overall objectives: Financial stability & Financial development „

Priorities for 2006-2015 Develop systems to deal with problem bank resolution and insolvency „ Develop an effective, efficient and safe national payment and settlement system „ Continuing to improve both the legal and regulatory framework for banking supervision and banking supervision itself. „

Banking Sector of Cambodia (7) „

Cambodia commercial bank’s products & services „ Deposits (savings, current and fixed accounts) in KHR, USD, THB, Euro etc. „ Loans: Commercial, SMEs, Housings, Consumers „ Guarantee Service „ Trustee Service „ Foreign Exchange „ Travelers Cheques „ Trade Finance: Letter of Credit „ Local and international money transfer „ ATM Service „ International Credit Cards

Banking Sector of Cambodia (8) „

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Four Big Banks in Cambodia: represented 77% of total deposits and 74% of total loans (as of June 2008): „ Cambodian Public Bank „ Canadia Bank „ Acleda Bank „ ANZ Royal Bank Recent development in the Cambodia’s Banking industry „ Reserves Requirements: 8 to 16% „ Real Estate Loan: 15% of bank’s loans portfolio

Banking Sector of Cambodia (9) „

Progress in banking: New players „ As more and more players enter into the industry, and competition become intensify causing banks to upgrade themselves to stay in business. „ Both credits and deposits grow rapidly showing an increase of public confident in the sector. „ Banks are now more profitable as the interest rate spread remained high. „ Despite prudential ratio dropped gradually, the overall enforcement is improved.

Banking Sector of Cambodia (10) „

The Remaining Issues and Risks „ Highly dollarized economy „ Low access to formal finance „ Slow progress of money market development „ Lack of reliable information in lending environment „ Lack of legal framework to enforce commercial contacts

SWOT Analysis (1) „

Strengths „ Government support, especially NBC „ Strong support from international organizations, such as WB, ADB, IMF, IFC etc. „ Association of Banks in Cambodia (ABC)

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Weaknesses „ Highly dollarized financial system „ Highly liquid in the banking sector „ No Capital Markets

SWOT Analysis (2) „

Opportunities „ Economic growth „ Public trust „ WTO accession „ Low level of savings intermediation

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Threats „ Political risk „ Competition from foreign banks

Recommendation „ „ „ „ „

Human Resource Training & Development Customer service quality’s improvement Products and services innovation Network improvement IT development

Conclusion „

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Financial sector development is important to the speed and direction of economic growth, since a strong and well functioning financial sector can mobilize idle financial resources for productive investment needs. A sufficient and competitive financial system but sound and cautious one will play an important role in the national economic development by ensuring effective financial resource mobilization and distribution. Securities Market is the lifeblood of capitalist economy which will actively contribute to mobilizing financial resources to finance the national economy, and to ensure sustainable economic growth.

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