RHB Indochina Bank Ltd’s outlook is bright as it expects loans growth to be about 20 percent for the financial year ending December 31, 2018 (FY18) compared to 15 percent last year, backed by a robust economy. Managing director and chief executive officer Lim Loong Seng said the rising investment is benefitting local enterprises including wholesalers, traders, hoteliers and health sector players, which make up 90 percent of its loan portfolio as Cambodia’s gross domestic product expands at an average of seven percent in the past few years. “Visually, people say it is because of the condominiums mushrooming in Phnom Penh, Siem Reap, and particularly in Sihanoukville. These kind of investments do stimulate the demand for the retail sector such as construction materials, and food and beverage. “So, it adds value to the economy, and therefore businesses would have to expand for higher demand, translating to higher demand for loan. We have already seen a growth in loans at 12 percent in the first nine months of this year,” Mr Lim said in an interview in conjunction with the bank’s 10th year anniversary.
Since its establishment on October 20, 2008, RHB Indochina (born out of a merger between RHB Capital Bhd and stockbroking firm OSK Investment Bank Bhd in 2013), the bank’s loan portfolio comprises retail and commercial. Retail loans consisting of mortgages, hire purchase and personal credit represents 13 percent of total loans with a value of $55 million, and the remaining 87 percent features commercial loans valued at $400 million – 50 percent of that are corporate loans and 37 percent are small and medium enterprise-based.
For an industry whose core business involves money-lending, Mr Lim assures that its loan impairment is under control despite challenges in the agriculture and agriculture-related sector where it provides credit for rubber plantations and rice mills, and businesses trading in tractors, fertilisers and pesticides. “Banks that have exposure in this sector would be impacted because of the sluggish global agro-economy. We have not seen any daylight coming through but our impact on loans is under control as they are secured by collaterals,” he said. RHB Indochina, a subsidiary of Kuala Lumpur-based RHB Banking Group, contributed about $11 million profit before tax or 1.5 percent to the overall group revenue in FY17. “It is small but we are confident that in another 10 years, it could increase to four to five percent. That is large, seeing that we came from zero 10 years ago,” Mr Lim said. The bank’s assets have also surged to $750 million comprising loans, deposits and cash from $600 million five years ago. On meeting the National Bank of Cambodia’s directive requiring commercial banks and microfinance institutions to ensure 10 percent of loans granted are in riel, Mr Lim expressed confidence that the bank would hit five percent by the end of FY18 on the basis that it has reached two percent of riel loan approval to date.
He said the remainder five percent would be met by the end of next year, which is the deadline for compliance, thanks to a series of initiatives it implemented to encourage NBC’s objective. “We are supportive of NBC’s move to encourage the usage of the local currency and for people not be totally dependent on US dollars. We understand the reason as currently, the central bank does not have much room to manage its monetary policy,” he said. RHB Indochina has converted some of its existing housing and business loans to riel but notes that one of the biggest challenges it faces is that the population is not ready to accept riel as the major currency because their business – imports and sales, are based in US dollars. Its proactive campaigns to educate its customers and the public to accept the riel as a medium of transaction includes special discounts on riel loan interest loans if the existing borrowers convert their US dollar loans to riel loans.
“Assuming we impose an eight percent interest for US dollar loans, the discounted rate could be as much as 7.2 percent for riel, which is a big subsidy on our part,” Mr Lim said. The bank is also launching a riel-only deposit campaign with up to 10 percent interest rate on a tier-basis every quarter and an additional 10 percent top-up on the interest rate compared to 4.5 percent for US dollar deposits. However, the move comes at a price on RHB Indochina’s profitability particularly with the special rates to encourage higher conversion.
“Our net interest margin for riel loans would be much lower compared to the US dollar loans. For example, by the end of 2019, we would need to grant $50 million worth of riel loans. We expect a 0.8 percent impact on our total bottom-line (but) that is manageable,” he said. Mr Lim expressed hope that the government would create an conducive ecosystem including enforcing price tags on goods and services, and encouraging importers to use riels. “All the big-ticket items are in US dollars. It is only at the retail, petty trading level and in the provinces where the usage of riel is higher whereas US dollar is popular in Phnom Penh, the commercial business district of Cambodia. “We believe that usage should start with the user. It should be a bottom-up strategy where banks can facilitate the availability of riel,” he said.