Thursday, August 6, 2009

Banks in Cambodia - Following Agribank and Sacombank, the Bank for Investment and Development of Vietnam (BIDV) has just purchased a private Cambodian bank and opened a representative office in the country. Other Vietnamese banks are also eyeing the market.

The door is now open wide

By June 30, 2009, Cambodia had 25 commercial banks, including four foreign bank branches and 21 local banks (local banks also mean 100 percent foreign-owned banks), six specialised banks, two representative offices and micro-financial institutions and registered foreign exchange conversion offices.

According to Tran Bac Ha, Chairman of BIDV, in general, the banking system in Cambodia remains small. By early January 2009, the total assets of the commercial banks in the country reached 4,284.9 million, or just 28 percent of BIDV’s total assets. The four biggest banks in Cambodia hold 64 percent of total assets, 72 percent of total outstanding loans and 70 percent of the total deposits of the whole banking system.

Cambodia is now opening its doors wide to foreign investors, which explains why 2/3 of the banks here are foreign-owned banks, which hold 65% of the market share.

However, banking products remain very poor with deposit, lending and payment services the three most popular products. Meanwhile, card services remain limited, the interbank market has not developed, derivatives products and a bond market have not appeared yet.

According to Vietnam’s trade counsellor to Cambodia, the investment and trade relations between the two countries have been developing strongly. To date, Vietnam has 400 representative offices in the country, 28 investment projects totalling $228 million, or 28 percent of Vietnam’s outward investment.

Joint venture, representative office or definitive purchase?

The counsellor says that as Cambodia is now in the first stage of development, it offers easy conditions for joining the market, thus there are big opportunities for Vietnamese banks to conquer the market.

Before BIDV made its trade and representative presence in Cambodia, Vietnam had two representatives in Cambodia already, Agribank and Sacombank, which opened branches in June 2009.

But no one is sure which mode of investment Vietnamese banks should follow: gradually penetrate the market and expand market share by setting up joint ventures with Cambodia partners, open representative offices, set up branches or purchase Cambodian banks outright and then restructure them?

An official of a state-owned bank said that the last solution proves to be the best one as the technical barriers set by Cambodia remain relatively low, and there are private banks for Vietnamese banks to negotiate to purchase.

However, if Vietnamese banks choose the solution, they need to have high corporate governance and finance capabilities and good human resources. Moreover, they need to have good negotiation skills to purchase the banks at the best prices. After the deals are made, Vietnamese banks will have to spend years restructuring the Cambodian banks.

Regarding human resources, Vietnam Airlines once also met difficulties when it teamed up with a Cambodian partner to set up Cambodia Angkor Air. Vietnam Airlines had to recruit Khmer people who are living in the Mekong Delta for the joint-venture airline. However, these people were not able to begin work immediately. They had to undergo training courses before they could start.

Similarly, BIDV has decided to send the Director of LaoViet Bank from Vientiane to hold the post of Director of PIBank in Cambodia, and send key personnel from Vietnam to Cambodia.

The said official also mentioned the forming up of joint-venture banks, but he said that this is not really a good choice, since Vietnamese banks would not have a lot of power in the joint ventures. Meanwhile, it is not easy to find suitable partners for such ‘marriages’.

The official said that it would be better to open representative offices of bank branches.

Sacombank, one of the biggest banks of Vietnam, spent one year surveying the Cambodian market before it opened a branch there.

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