Cambodia’s largest microfinance institution (MFI), Prasac MFI Plc, is now a commercial bank, following the complete acquisition by KB Kookmin, one of South Korea’s top five largest banks, for an accumulated sum of $1 billion last year.
The new entity, known as KB Prasac Bank Plc, is a merger between Prasac, which was a microfinance deposit-taking institution (MDI) with nearly $4.8 billion assets as of December 31, 2022, and Kookmin Bank Cambodia Plc.
According to banking expert Stephen Higgins, the merger of Prasac and Kookmin Commercial, whose asset value is a fraction of Prasac’s, makes “complete sense” rather than having two separate operations under the same parent in Cambodia.
He said Prasac currently borrows more than $600 million from Kookmin group. As such, they are already getting the benefit of a “big parent with deep pockets”.
“I don’t expect this merger to actually change much in terms of borrowing costs,” commented Higgins, co-founder and managing partner of Mekong Strategic Capital, when asked about the likelihood of reduced borrowing costs in view of the merger.
Surge in profit, asset value
Recall that KB Kookmin’s parent, New York-listed KB Financial Group Inc, became a substantial shareholder in Prasac after acquiring a 70 percent stake from Sri Lankan LOLC Holdings Plc in 2019 at $603.4 million. LOLC’s remaining 30 percent equity in Prasac was bought by the Korean group at $322 million in 2021.
Having started in 1995 as an EU development fund to help the agriculture sector in six provinces, Prasac transformed into a credit association in 2002 and an MFI in 2003, before receiving its MDI licence in 2010.
Net profit has grown over 20 times to 722 billion riel ($175.5 million) in its financial year ended December 31, 2022, from 35.1 billion in 2011 (since the MDI licence), with asset value rising nearly 20 folds from 629.02 billion riel ($152.9 million) at the time.
Commercial bank, Kookmin Bank Cambodia, which set up a branch in Cambodia in 2009, recorded an 11.06 percent year-on-year increase in net profit at 42.6 billion riel ($10.3 million) in 2022, with total assets amounting to 2.2 trillion riel ($534.9 million).
‘Many new entrants’
Despite the size of Cambodia’s population, the commercial bank segment possessed 58 banks as at end-December 2022, while the MFI sector, including five MDIs, totalled 87.
However, despite being an MDI, Prasac, like its peers, is effectively a full service retail bank already in terms of what it does, Higgins said. He noted that the merger does not increase the number of commercial banks, rather there will be “one less bank in the sector, not one more”.
Consolidation of the sector has been suggested by experts over the years as an ideal solution but efforts have been slow, given that many of the banks have strong parent companies overseas.
While unable to comment on individual banks, Raymond Sia, chairman of the Association of Banks in Cambodia, was cognisant of the many new entrants in the past few years.
“The industry remains welcoming to new entrants for the best interest of our customers and public,” he said.
Focus on tech, loan quality
The merger between Prasac and Kookmin Bank Cambodia is “highly symbolic as it is the successful transition of the country’s largest MFI to a leading commercial bank and a meaningful lead-off consolidation for the local banking industry”.
“It seems to be a required and natural evolutionary step for the giant MFI,” said Han Kyung Tae, managing director of Yuanta Securities (Cambodia) Ltd.
When it comes to the overall prospect of much needed consolidation in the local banking sector, although physical consolidation within the industry is “absolutely necessary and inevitable”, it might not occur as quickly as expected.
Han told Kiripost that in a very different market environment of high interest rates, increasing non performing loans and downwardly adjusted growth potential in private sector debt, local banks may see it more sensible and worthwhile to focus on investing in technology.
They might also pay attention to controlling the quality of their loan portfolio and customer base in order to achieve a healthy, steady growth rather than double down on asset size in a hurry.
“When it was said in the past that the business model for local banks in Cambodia was simple and easy with extremely low funding costs and the banking products and services were indifferent, some banks took the initiative and made forward-looking investments in their technologies and services, which has brought about a disruptive but beneficial change to the industry and created a healthy competitive environment for the future.
“I am confidently expecting the new KB Prasac bank to bring such changes to the industry moving forward,” Han said.
Meanwhile, Prasac president and CEO, Oum Sam Oeun, expressed delight with the approval for the merger and commercial bank licence, thanking the National Bank of Cambodia (NBC) and Ministry of Commerce for supporting the consolidation.
The merger, he said, signified a powerful synergy that would create more benefits to customers.
“By mixing Prasac’s long-standing experience in microfinance with Kookmin Bank’s cutting-edge FinTech solutions and global expertise, we become a new stronger bank with an extensive network, wider branch presence, and increased total assets,” he added.
Sam Oeun said as they begin their journey as a full-fledged bank, they are committed to “working tirelessly to make customers’ lives better and contribute to Cambodia’s development by delivering innovative financial solutions and promoting financial inclusion”.
“We are confident that the merged bank’s expertise, resources, and commitment to excellence will empower customers and communities alike, and stay in tune with the best financial partner,” he added.
The bank also reminded customers that all documents such as loan agreements, term deposit certificates, ATM cards, credit cards, savings passbooks and other legal documents of both Prasac MFI and Kookmin Bank Cambodia remain valid.