AsiaLIFE

Nobody knows banking in Cambodia better than John Brinsden. With the seemingly endless stream of new banks entering the market, AsiaLIFE Guide invites his views on the future of the financial sector in the kingdom.

AsiaLIFE Guide: You joined Acleda in 2000. What was your experience in banking prior to that?
John Brinsden: I had a 38-year career in international banking with Standard Chartered Bank (Chartered Bank until 1985). Between 1964 and 1990 I held various management positions in Hong Kong, India, Indonesia, Iran, Malaysia, Singapore, Taiwan and the U.S. I retired in 1999.     

Acleda was established in 1993 as a micro-finance institution but became a commercial bank ten years later. Can you explain the process of this transition?
ACLEDA embraced early the principle that in order to be sustainable we must be run as a business rather than a charity – loans are expected to be repaid and interest rates should reflect the cost of providing the service. Whilst this hard-headed approach attracted some criticism at first we found that our customers were less concerned with subsidies and more with service. From then business grew so quickly that we very soon outran our funding sources which depended very heavily on donors' support and, with their blessing, started the process of transformation to a full commercial bank in 1998.

It seems as if a new bank opens in Phnom Penh each month. Do you feel that the market is over-saturated?
A very simple answer would be 'yes' but in reality the situation is more complicated than that. Of the 25 commercial banks (i.e. excluding the 'specialized banks') now in operation, four banks account for 284 offices out of a total of 352 and over 70 percent of total loans and deposits – and this gap is still widening! The conclusion is that even though the number of banks is increasing it is not so far affecting the 'big-4'. Just why this is so is open to discussion but I would suggest that it has a lot to do with transparency – an increasingly educated public are now demanding more information and placing their trust with those that provide it. The question is 'what about the others?' They face the choice of either challenging the major banks in all their markets, an option open only to the deep-pocketed, or focusing on their chosen niches, such as serving their own national customers. 

What do you think are the major dangers facing the banking sector?
Whilst there are a number of dangers in the current crisis such as the twin demons of diminishing cash-flows (ability to repay) and falling asset values (negative equity), these are merely more extreme manifestations of normal banking experience and not specific to Cambodia. To me the biggest danger to banking in this country is the seeming complacency shown by some of the banks towards the lack of any proper apparatus for inter-bank cooperation. We have been talking for more than 10 years of the need for a proper money market where short-term surpluses and deficits can be traded off and the liquidity of the whole system better managed. We have been talking for the same length of time about the need for a credit bureau. The National Bank of Cambodia has made enormous strides in reforming the banking system, but they can't be expected to do everything on their own. I do believe that it is up to the banks themselves to get together and shape their destiny. 

How has the global downturn affected the banking industry in Cambodia?
As yet, relatively little. Some pain was felt in the second half of last year with the drying up of inward foreign investment remittances which, coming on the back of the sharp credit expansion in the first half, left many banks very tight for funds. This presented the National Bank with the opportunity to tighten credit and bring down inflation by a relatively modest increase in the deposit reserve requirements. In the meantime inward remittances have started to pick up and the banking system is returning to its normal position of having surplus liquidity. Currently, less than 90 cents is lent out for every dollar on deposit! The problem at the moment is not so much the shortage of funds to lend but the banks' need to rebuild their own confidence that the tide is turning.    

How do you see the banking sector evolving in Cambodia over the next five years?
I believe the next five years will be markedly different from the rather breathless growth we have seen over the last five years! The surge of new entrants in the last 18 months, set against the cross current of the present economic uncertainties, gives me some concern as it obviously did the National Bank who have responded by almost tripling the minimum capital requirements for all banks, existing and new, by the end of 2010. I foresee that some of the smaller banks may opt to close rather than find the new capital (just as they did in 1999/2000) while others may merge, seek a stronger foreign partner or sell out altogether. One trend that I do welcome, and which in my opinion was long overdue, is the arrival this year of more substantial and internationally recognised financial institutions such as Kookmin, State Bank of India and Sacombank. This will raise the temperature in terms of service offerings and competition and will make it harder for the smaller banks to survive.  The opening of a stock exchange and the insurance market may offer opportunities for some banks, but I think growth will be slow in the first years as the market is as yet very small and underdeveloped.

I notice from your website that you have e-banking services, but not full internet banking. Is this a service you see offering clients in the near future?
We are exploring a number of new services but the timing is all important. In the case of internet banking the essential ingredient is widespread public access to PCs and the internet. Whilst this is growing it still has some way to go before the critical mass is achieved especially in provincial areas. At this point, phone banking looks more attractive but this should be part of a holistic approach to e-banking. Developing the ATM and PoS services is an integral part of this.

John BRINSDEN, OBE,
Company: ACLEDA Bank
Position:  Vice-chairman
Nationality: British/New Zealand
How long in Cambodia / Vietnam: 20
Married to Chuang Pi-Feng with one daughter