Large-scale Chinese investment has brought Industrial and Commercial Bank of China (ICBC) and Bank of China to the Kingdom, but insiders have predicted they will soon be competing with the 30 or so other commercial banks already doing business here.
Cambodian banks had traditionally catered to niche markets such as micro-finance and agricultural finance, a practice that had limited their growth potential, National Bank of Cambodia director- general and spokeswoman Nguon Sokha said yesterday.
But as bigger, international banks such as ICBC and Bank of China eyed the Kingdom, domestically owned banks would have to diversify, Nguon Sokha said.
“They shouldn’t feel comfortable in their existing framework. They should know the market is expanding, and they should know the risks of remaining small,” she said.
Bank of China entered the Cambodian market in May, while ICBC opened its first Phnom Penh branch earlier this month. Chinese investment in Cambodia reached US$694 million in 2010 and bilateral trade was expected to hit US$2 billion this year, the Post reported in October.
Although ICBC was expected to focus on financing large development projects, the company would not limit itself to loans that were often beyond the lending limit of domestically owned banks, ICBC chairman Jiang Jianqing said at the bank’s launch on December 1.
“It will also extend its financial service to traditionally advantageous local industries such as grain and tourism,” he said in a speech.
“This will bring banks such as ICBC into direct competit-ion with domestically owned banks,” Nguon Sokha said, adding that ICBC – the world’s biggest bank by market capitalisation – was interested in micro-finance and agriculture.
Although the Chinese banks would diversify and lower the cost of financial services in the Cambodian market, the resulting increased competition might lead to consolidation among some of the Kingdom’s smaller financials, she said.
The recent Chinese entrants would not be the last big banks to come into the Cambodian market, Phan Ying Tong, country head of Malaysian-owned Cambodian Public Bank, said.
More international banks would follow, and the domestic sector must diversify or consolidate, he said.
“Banks cannot remain status quo. They must change as competition increases,” Phan Ying Tong told the Post in November. “The sooner, the better for consolidation.”
Cambodia was over-banked, World Bank economist Huot Chea said in a biannual review of the Cambodian economy last month. The number of banks in Cambodia had increased rapidly in recent years, but there were still few with large levels of capital, he said, adding that he welcomed a strengthening of the sector.
Of about 30 commercial banks in Cambodia, 12 hold about 90 per cent of deposits, World Bank economists say.
Bank of China and ICBC would bring new financial products and know-how to Cambodia, and might inspire some restructuring within domestically owned banks, Canadia Bank vice-president Dieter Billmeier said.
“This kind of competition is good for Cambodia, because it brings new ideas into the market,” he said.
Domestic banks and ICBC will most likely compete directly in trade finance, but Billmeier said he doubted the Chinese behemoth would push smaller banks out of the market, given the upward trend in Cambodia’s trade growth.
Cambodia’s financials had recently begun to diversify from traditional collateral-based loans to new financial products and lending practices, Billmeier said, noting that domestic innovation was already on an upswing.
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