Cambodia Investment Review

ACLEDA Bank ready for the opportunities and challenges of 2022

ACLEDA Bank ready for the opportunities and challenges of 2022

Harrison White

President and Group Managing Director of ACLEDA Bank Plc Dr. In Channy is preparing his bank for the winding back of allowances by the regulator during the pandemic after a large increase in lending that lead to strong profit growth.

Speaking to Cambodia Investment Review Channy who has led ACLEDA since it was established as a bank in 2000 explained the record after-tax annual profit of $166 million last year was mainly attributed to increased lending and restructuring over the last two years.

Cambodia’s banking sector has performed strongly during the pandemic with other notable institutions ABA Bank and LOLC Microfinance also posting record after-tax profits of $212 million and $54 million respectively last year.

“ACLEDA Bank was able to achieve our record profit because of increased lending and restructuring for our customers in part due to the National Bank of Cambodia’s allowances to financial institutions aimed to increase liquidity during the COVID pandemic,” Channy said.

“However, we believe the recent winding back of those allowances by the regulator and our internal plans to exit out of the pandemic measures will most likely result in the slowdown of lending and inturn profit growth for the industry as well increased non-performing loan ratios,” he added.

To read ACLEDA 2021 Q4 financial report click here.

According to the bank’s most recent quarterly report, non-performing loans have only been slightly increasing over the last two years now at 2.33% with non-performing loans currently listed at $122.94 million with a loss allowance of $22.58 million in 2021.

Total revenue has increased year-on-year during the pandemc.

The National Bank of Cambodia has stated it will continue allowing financial institutions to restructure loans until June 30 this year – but will now classify them as non-performing after multiple restructures.  

In addition last year, the National Bank of Cambodia announced it would maintain the current reserve requirement ratio at 7% until further notice.

Normally the minimum amount of cash that financial institutions must hold with the NBC is 12.5% in foreign currency (typically dollars) and 8% in the local riel currency, both of these requirements were dropped to 7% in the NBCs first phase of debt relief measures in March 2020.

To read more about the updated restructuring allowances click here.

The share price remains ‘undervalued’

However, despite these record profits ACLEDA Bank’s (CSX:ABC) share price is continuing to trade at record lows falling to as low as KHR 10,300 recently down 36% from its 2020 IPO price of KHR 16,200 a share now increasing to around KHR 13,000.

Industry insiders have cited the investment hesitancy is mainly due to the potential for ongoing selling pressure as an additional 89 million shares (20% of total company shares or four times is IPO) may need to be absorbed into the open market over the next few years.

“The company stock price, unfortunately, remains low due to the selling pressures from the bank’s staff that were granted to sell on the open market last year. That said we believe the price does not reflect the company value and is a fantastic investment opportunity,” Channy said.

It was this investment opportunity the company trust ACLEDA Financial Trust (AFT), of which Channy is also a member, saw and released a statement to the market outlining they would be purchasing stock over the next five years.

The AFT has not provided any additional information on the number of shares nor a specific timeframe. AFT currently holds 25.74% of total company shares.

Ready for 2022

20222 will also see Channy hand over the chairmanship of the banking association to Candia Bank CEO Raymond Sia after holding the position for his allowed two terms.

“I am very comfortable stepping down as the head of the association after implementing structural changes to the organization to ensure good governance and will remain as a board member,” Channy said.

“One of my biggest achievements during my chairmanship was implementing the sector-wide Code of Conduct and updated lending guidelines that will now govern our members and ensure we meet the highest standards of ethical lending,” he added.

The three institutions that launched the code included Cambodia Microfinance Association, Association of Banks in Cambodia and the Cambodia Association of Finance and Technology.

The newly launched ‘Banking and Financial Institutions Code of Conduct’ says association members must have a clear marketing and advertising content, hassle-free debt collection and to stop aggressive selling techniques.

In addition, members must also agree to maintain customer data privacy, provide financial literacy to their customers, encourage women’s enterprise, protect social causes and prevent over-indebtedness.

To read more about the code and guidelines click here.

Reflecting on the continuing trends in 2022 Channy says “big data and digital capabilities” is what the majority of financial institutions are investing heavily in this year and beyond with a focus on simplifying loan approvals.

“The central bank has made financial inclusion a cornerstone of their framework so combining big data with strong digital capabilities should allow greater access to the under-banked communities in Cambodia at an acceptable risk to lenders,” Channy said.

“Many lenders are also looking at the possibilities of alternative data to include those customers that have never had access to formalized lending before,” he added.

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