Quiet revolution in banking

Slowly but inexorably Cambodians are beginning to remove their savings from under their thatch roofs to deposit them in banks, writes Allister Hayman.

Just after midnight on a recent Sunday, two men on a motorbike whipped past Sok Sreypheap and grabbed the gold chain around her neck. It broke as she was pulled off the bike onto Phnom Penh's Sothearos Boulevard and the thieves sped off with their bounty.

Sreypheap, not her real name, escaped with mild grazing. But the chain, valued at over $200, represented her personal savings.

Sreypheap, 23, a waitress, works two jobs and earns about $110 a month. After expenses she sends about $20 a month home to her family in Kampong Cham province. The little left over she had saved at home until she bought her gold chain.

"This is the kind of story I just hate to hear," said John Brinsden, vice-chairman of Acleda Bank. "We come across this thing all the time and this is why we want people to deposit money."

With new innovations, the banking sector is bracing for a quiet revolution. According to the National Bank of Cambodia (NBC), total deposits in the Kingdom's banking system grew by 40 percent in 2006, with a total number of accounts growing to nearly 300,000. This is still a small proportion of the population, but significant growth in a country where about 35 percent of people live below the poverty line and distrust of banks is pervasive.

"[The growth] demonstrates that public confidence in the banking system has been increasing markedly and banking operations have been fairly and efficiently competitive," said Chea Chanto, the governor of NBC.

There are now 20 banks operating in Cambodia, with the major players reporting healthy growth.

Since converting from a small micro-finance NGO to a fully-fledged commercial bank in 2003, Acleda has enjoyed rapid growth with deposits doubling each year and that trend is projected to continue in 2007. Brinsden said while the overwhelming majority of Acleda's deposit growth is from first-time customers, it remains a constant battle to win trust.

"People will still say they prefer the risk of being robbed than using the bank," Brinsden said. "That's the extent to which there is a lack of faith in banks."

After decades of conflict - and under the Khmer Rouge a period without money - a series of sudden bank liquidations in the late nineties exacerbated a widespread mistrust of banks. With a large number of depositors losing their savings, the banking collapses reinforced a culture of in-home savings, where cash is often transferred into gold or other assets.

But according to a study by the Canadian Cooperative Association, Cambodians' lose 15 percent of their at-home savings each year due to fire, theft and water damage - or through debased gold and jewelery, or the loss of assets like livestock that were marked for short-term savings. The study estimated the total loss to be $60 million - money lost not only to each family, but to the Kingdom's economy.

"We try to explain to people the risk of storing money in their homes," Brinsden said of Acleda's marketing division. "We explain that not only will their money be safe in the bank but it will be used to provide loans to small businesses to help economic growth."

ANZ Royal is the new player. Opening in 2005 the bank has been leading the way with innovations in electronic banking. ANZ Royal was the first bank in Cambodia to introduce 24/7 banking services to customers with internet banking and a network of on and off-site ATMs. ANZ Royal are yet to release results for the 2006 financial year, but the bank states it is now the third largest in Cambodia in terms of deposits. "We have brought trust, international standards of governance, convenience, innovation and superior customer service to Cambodia," said ANZ Royal CEO Dean Cleland.

Canadia Bank showed total deposits more than doubling from $8 million in 2005 to $19 million at the end of 2006. Vattanac Bank also reported strong growth over the previous fiscal year, with the number of customers doubling and deposits reaching $36.7 million.

A senior representative at Cambodia Asian Bank (CAB), who spoke on condition of anonymity, said growth at CAB was healthy but the number of accounts in the banking sector overall- about 2 percent of the population-remained extremely low. Growth in the sector was sharp, the banker said, only because it was founded on such a low base.

"The growth is coming from two main sources: increased overseas investment, with money flowing into the country, as is the case across the region, and the boom in the land market," the banker said. "People are buying and selling land, the prices are rocketing and people are making money. It's the already well-off who are getting more wealthy that are using are banks, not so much everyday Cambodians."

The major commercial banks are still largely concentrated in the urban centers, where the Kingdom's economic growth has been founded. But Acleda's reach is more extensive: from Oddar Meanchey to Svay Rieng, new banks are being built on Acleda-owned land. "It's important to show that we are here for the long term. That's how you win trust," Peter Kooi, a director of the bank, said. "If you rent a building the people think you could pack up and leave tomorrow, which is what has what happened before."

Acleda uses savvy marketing to sell their products to the rural population. In the branches TVs play music videos of famous Chapei players singing songs that explain to a largely illiterate rural population what a savings account is; what a loan is and why the bank is a better bet than storing money in your home or borrowing from a loan shark. "Deposit growth has been healthy and winning trust is the key," Brinsden said. "The next step is to get customers' salaries directly transferred into their accounts."

But the revolution in the banking sector remains a quiet one and the tipping point, it seems, is still some way off. Despite the loss of her savings Sreypheap, along with millions of other Cambodians, remained unconvinced about the benefits of banking. "I just don't have enough money to use a bank," she said. "I was just unlucky."

This article first appeared in the Phnom Penh Post