Despite tighter liquidity and higher non-performing loans (NPLs), Cambodian financial institutions entered the post-pandemic period with “very strong capital levels”, a “low starting point” in terms of NPLs around 2.1 percent in 2021 and a level of profitability.

The outcome suggests that they are well positioned to navigate the new environment, Mekong Strategic Partners Co Ltd said in relation to the performance of Cambodia’s financial sector in 2021. The information was summarised in a presentation titled ‘Navigating the New Normal;, which was released on December 6 this year.

However, the Phnom Penh-based investment and advisory firm pointed out that tight liquidity in 2022 meant that interest rates on loans and deposits will be higher, effecting a slower loan growth going forward.

Loan growth has outpaced deposits in the last five years, resulting in a higher loan-to-deposit ratio of 117 percent for 2021, or $6.7 billion funding gap.

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“Increased competition for deposits would likely see higher cost of funds (COF) and higher loan interest rates,” it added.

But funding gap aside, sector liquidity remains “strong”, with a liquidity coverage ratio of 151 percent for commercial banks and 160 percent for microfinance institutions (MFIs), which “compares well regionally”.

Meanwhile, the summary, which analyses National Bank of Cambodia (NBC) and regional banking data, showed that the Cambodian sector performed “surprisingly well” during the pandemic, largely assisted by “very sensible” government and NBC actions and policies.

Due to that, the finance sector was able to support the broader economy by keeping credit flowing and encouraging a rapid uptake of digital payments to meet consumer demand.

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“Overall, the sector performance over the past three years compares very well against ASEAN peers in terms of growth and financial stability,” Mekong Strategic Partners said.

It identified Advanced Bank of Asia Ltd (ABA), ACLEDA Bank Plc, Canadia Bank Plc and Prasac Microfinance Institution Plc, as the “big four” financial institutions in Cambodia, which represented 40 percent of the total $3.5 billion revenue last year.

MFIs and microfinance deposit-taking institutions (MDIs) have also gained ground in terms of overall revenue share, rising 12 percentage points over the last decade.

As for net profit, the big four represented 47 percent of the total in 2021, with ABA at the top with $216 million earnings and the largest loan book holder at $5.2 billion as of the end of December.

Accordingly, ABA’s COF (interest rates with lenders) of around one percent and a reasonable cost-to-income ratio (CTI) in the “low 30’s” (an efficiency indicator for expense management) has made it a “clear market leader in terms of profit”.

“If the remaining big four banks were able to reduce CTI and COF to match ABA, the favourable impact would be significant,” it said.

This could push up ACLEDA’s net profit after tax by 105 percent, while Prasac’s could rise by 73 percent and Canadia’s by 59 percent.