Cambodia's last four microfinance deposit-taking institutions (MDIs) will cease to exist soon as they upgrade to commercial banks.
Towards commercial banks
The last four MDIs, Amret Co Ltd, LOLC (Cambodia) Plc, AMK Co Ltd, and Mohanokor Plc, which have a a combined asset of about $6.4 billion as of 31 December 2023 - are in the process of applying to become commercial banks, and the National Bank of Cambodia (NBC) is reviewing their applications. The idea of MDIs becoming commercial banks has been talked about for a while as one of the biggest banking sectors in Southeast Asia looks to consolidate.
Natural move
Banking experts think it's a pretty natural move, given that these MDIs already operate like commercial banks.Back in 2023, the sector had 58 commercial banks, 87 microfinance institutions (including four MDIs), nine specialist banks, and a bunch of other financial-related firms.
More efficient and competitive
The market has evolved with banks providing financial services to both urban and remote areas, and low-income people can also enjoy banking services, including digital banking. NBC is hoping that BFIs will consolidate to make things more efficient and competitive, given that there are already over 200 banks, MFIs, leasing companies, and rural credit operators.
Big changes
The last two months have seen some big changes in the Cambodian banking sector. There's been talk about Taiwanese-owned Bank SinoPac Ltd buying Amret, and LOLC's interview in October with a Khmer publication about plans to upgrade. Big Microfinance Institutions (MFIs) like Amret and LOLC are now just like commercial banks and in the top 10 financial institutions in Cambodia. They've got loads of branches and ATMs, they lend money, they take deposits, they've got mobile apps, they can do domestic payments, and they're now serving a similar customer base to many commercial banks.Two years ago, MDIs accounted for 5.4% of overall assets, which is pretty small compared to commercial banks' 91% share, according to NBC's 2023 Financial Stability Review.The lower profitability ratios were down to higher loan provisioning and operating expenses that year. Most of their loans are to farmers and people's households, with trade and commerce coming a close second.
Conditions
Most of their funding comes from people's deposits - about 52%, or $2.3 billion. In 2023, the central bank decided that MDIs had a pretty solid capital adequacy ratio of 23%, which is above the 15% minimum they're required to have under NBC rules. This part of BFIs started in 2012 with seven MDIs: Amret, Hattha Kaksekar Ltd, Sathapana Ltd, Angkor Microheranhvatho Kampuchea Co Ltd (or AMK), Vision Fund (Cambodia) Ltd, Kredit Co Ltd, and Prasac MFI Ltd.
Over time, five of these MDIs became commercial banks after foreign entities acquired or merged with them, while AMK welcomed Shanghai Commercial and Savings Bank as its new owner.Microfinance institutions (MFIs) Mohanokor Plc and LOLC also became MDIs.The transformation of Amret, the largest MDI with assets of $1.9 billion, is now looming on the back of Bank SinoPac's recent stake.
The central bank has been pretty clear for years that before an MDI can convert to a commercial bank, it needs to have a big commercial bank as a strategic shareholder.
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