INTERVIEW Stephen Higgins CEO, ANZ Royal Bank

INTERVIEW

Stephen Higgins
CEO, ANZ Royal Bank

The global economic downturn has highlighted Cambodia’s vulnerability due to its narrow economic base. Is this not then the perfect time for the country to speed up progress, diversify production, increase exports, and become more competitive?

I think that any country should be focused on all of those things, all of the time, but yes, the downturn should provide an incentive to drive harder on those things.

One of Cambodia’s biggest problems is a perception issue. Most foreign investors are surprised to discover that doing business here is much easier than in many Asian countries. The government is pro-business, infrastructure issues are gradually being fixed, there is a large, young workforce available, and Cambodia is at the geographic heart of the most dynamic region on the planet.

How damaging has this downturn been to Cambodia?

It has been damaging for all countries, and Cambodia is no exception. Cambodia has gone from being the 2nd best performing economy in Asia over the past decade, to being one of the worst performing economies in 2009. However that is in the short-term, and we are already starting to move beyond that. From an investors perspective, now would be a better time to invest than pre-crisis. You benefit from the upswing, and the government continues to make progress on the infrastructure issues that have been holding Cambodia back.

Has the government and the National Bank (NBC) handled the recession well?
I think the NBC has done quite a commendable job and will emerge from this period with even greater authority.

Has enough been done to boost the national economy?
I guess it is all a question of timing. In the short run, the government has been fairly constrained in its ability to use fiscal stimulus in a meaningful way. Longer term, more needs to be done in terms of strengthening the legal system, there needs to be much greater investment in quality education. There is no point building schools without investing in the teaching staff as well. Cambodia needs a lot of investment in infrastructure, and we are already seeing that happen.

The government estimates annual growth of around 3-5 per cent in 2010. Do you think this is a fair estimate, and is the country on the road to recovery?
From mid-2009 we’ve seen “green shoots” emerging. I would expect growth in 2010 to be at the top end of that range, if not above. Remember, this is an economy that was growing around double digits for an extended period, so in that context 5 per cent is not an overly large number.

What lessons will Cambodia learn from this experience?
Good question. One of the biggest lessons is probably the need to diversify the economy. Garments simply won’t be the answer longer term, and Cambodia needs to build up its light manufacturing base.

What measures has the banking sector taken to ride out the storm?
The bank sector didn’t really see much direct impact from the global financial crisis, with minimal linkages with the global financial system. However there have been second order impacts from the resulting recession, in the form of higher non-performing loans (NPLs). This is to be expected given the extent of the economic downturn, but banks here generally carry pretty large capital buffers to absorb those NPLs.

Do you foresee any bank closures due to
problems with liquidity and non-performing loans?
For a banker, disappearing liquidity is probably more scary than NPLs, and I was worried about the impact on some banks of falling system liquidity in late 2008. Fortunately we’ve always had a very liquid balance sheet, so we had plenty of buffer there. In terms of NPLs, there will be an impact which is to be expected at this stage of the cycle, but it is hard to see any banks closing as a result.

Have many local businesses gone bankrupt?
There’s a small number, but for the most part, businesses in Cambodia tend to have reasonably low levels of gearing, which means when cashflows dry up, they can sell their assets to clear their debt, without going through a formal bankruptcy process.

Despite the downturn, are lending opportunities increasing for banks in Cambodia?
Not yet – there just aren’t a lot of attractive lending opportunities out there at the moment where the customers have good cash- flows that can support additional debt. Like a couple of banks here at the moment, we are sitting on a pile of cash, and simply don’t have enough opportunities to lend it out.

Why is there no interbank lending in Cambodia, don't you trust one another?
I think you answered your own question. I think we are getting closer though.

Cambodia's 28 commercial banks are required to triple their reserve requirements from $13 million to $37.5 million by the end of 2010. They won't all make it will they?
Cambodia doesn’t need 28 Commercial Banks, so it would make sense for there to be some rationalisation in the sector. I think it is a very sensible move on the part of the NBC to raise the minimum requirements.

Of the 28 banks currently operating, would you
care to estimate how many there will be in 2011?
In a market the size of Cambodia, five or six big strong banks would be ideal, but it is hard to see the number getting that low.

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ANZ Royal Bank

ANZ Royal Bank was established by Australia and New Zealand Banking Group Limited (ANZ) and the Royal Group of Cambodia, one of Cambodia’s largest corporations. ANZ holds 55% of total shares on issue and Royal Group holds 45%. ANZ Royal Bank has an extensive network of ATMs throughout Cambodia and is the only bank that currently provides internet banking in Cambodia. ANZ Royal Bank offers various banking products and services for both personal and business customers.

Tel: +855 (0)23 999-000
www.anzroyal.com

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National Bank of Cambodia
The National Bank of Cambodia was established in December 23, 1954. After the country gained the independence from France. www.nbc.org.kh

The Association of Banks in Cambodia
The official organisation to represent the country's private banking sector. www.abc.org.kh

Stock Exchange Cambodia
Stock Exchange Cambodia is scheduled to open in 2009. The draft legislation on corporate bonds is currently under process of finalising according to Prime Minister Hun Sen. www.stockexchangecambodia.com

Securities and Exchange Commission of Cambodia (SECC)
SECC regulates the securities industry in Cambodia to contribute to socio-economic development through capital mobilization from public/ securities investors to meet the demand of financing for investors.
http://secc.gov.kh/english/

IMF Cambodia
http://www.imf.org/external/country/KHM/index.htm

IFC Cambodia
http://www.ifc.org/ifcext/eastasia.nsf/Content/Cambodia

World Bank Cambodia
www.worldbank.org/kh

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Ministry of Economy and Finance

Ministry of Economy and Finance (MEF) is delegated by the Royal Government to perform the mission of guidance and administration of the economy and finance of the Kingdom of Cambodia in order to support economic development and to improve the living standards of Cambodian people based on the principles of a free market economy and social equality.

Ministry of Economy and Finance
St.92, Sangkat Wat Phnom, Khan Daun Penh,

Phnom Penh, Cambodia
Tel: 855-23-724 664 Fax: 855-23-427 798
Email: admin@mef.gov.kh
http://www.mef.gov.kh/