Mekong Strategic Partners
Time for Consolidation? Cambodian Bank Sector Review 2020
Updated: Aug 11, 2020
Over the past decade, bank earnings have grown an average of 28% pa, although growth was slightly lower at an average of 20% over the last 5 years.
We believe that this would be one of the fastest rates of growth globally, and has contributed to the high demand for banking licences in Cambodia. An unfortunate side effect of this is that there are now too many small, underperforming banks in Cambodia, and there is a growing need for consolidation in the sector.
The bank sector had a very strong year in 2019, with revenue up 23%, and profits up 46%. Loan growth continued to be unsustainably high at 24%, with deposits up 15%.
Total loans for the financial sector overall (including MFIs) increased to $32 billion, reaching our 2014 forecast of $30 billion by 2020, a year early.
Despite this growth, Return on Equity in the sector remained relatively subdued at 11.7%. While there are now 12 banks delivering an acceptable return above 15% (up from just 7 banks in 2016), sector returns are dragged down by too many small, underperforming banks.
There were 60 banks at the end of 2019, which we see as unsustainable. We expect minimum capital levels to be increased from $75 million to $150 million between 2023 – 2025, which should help drive much needed consolidation.
COVID-19 impact expected to be modest in short term due to ability to implement repayment holidays for affected clients. Longer term impact more uncertain.
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