Local Banks Boosting Their Deposit Rates
Cambodia’s large commercial banks have begun competing with each other by raising deposit rates. (06 November 2008)
Cambodia's large commercial banks have beguncompeting with each other by raising deposit rates, with the annual rate at several banks rising to 8 percent in November, a record high. Experts say theannual deposit rate was as low as 5 percent prior to the global financialcrisis, which saw a tightening of credit among lenders in the wake of asub-prime mortgage collapse in the US. Facing limitedcapital from outside lenders, commercial banks are seeking to bring in morelocal capital, experts say. "To avoid thefinancial crisis, we have to increase our local deposits," said Phan Soneary,vice president and executive director of Acleda Bank. "Not only can [thecapital from deposits] support loans, but also other missions of the bank." Foreign lenders haverestricted their loans, while the number of new depositors has fallen, shesaid. Acleda recently raised its annual deposit rate 1 percent, to 7.5 percent. Meanwhile, bankssuch as ANZ Royal, Cambodia Public and Canadia have also increased theirdeposit rates, to 8 percent annually. It is not uncommonfor banks to adjust their rates up or down, said Pal Nay Im, general directorof the National Bank, but currently banks have to make themselves stronger. The deposit ratesare climbing, but annual interest rates on loans remain between 12 percent and15 percent. The increase oflocal deposit rates is the only way to help banks extend their capital whenforeign partners are reluctant to provide loans, said Chheang Meng Heak,banking and finance expert at the Royal University of Law and Economics. "Foreign lenders aren'toffering any loans now, because they are worried about lacking their own cash,"he said. "They do that just because they are concerned that their financialsystem could face a crisis." However, Oung MingTech, deputy director-general of Cambodia Public, said his bank was not facinga financial problem, because it depends wholly on its parent bank in Malaysia.Cambodia Public had increased its deposit rate to maintain local customers, hesaid. "You have to look atmarket demand. It is a very competitive market," he said. "We have increasedthe rate so that we can get more money deposits. If not, we will lose ourcustomers." Nearly 640,000Cambodians deposited money in local banks in the first six months of 2008, anincrease of 12 percent over the same period the year before, according to theNational Bank. However, thecontinuing worldwide financial crunch will likely reduce the number ofdepositors, said economist Kaong Chandararoth, head of the Cambodia Institute ofDevelopment Study. Banks who cannotcompete with the rising deposit rates will be forced to close, he said. Jeremy Ha, directorof Phnom Penh Commercial, said his bank would not be able to follow the ratesof the larger banks. "As a new bank, wehave tried to attract new customers, but we have no plan to increase thedeposit rate because we cannot do like other large banks," he said. "I am alsoworried about this problem." Other small banks,however, said they were preparing to increase their deposit rates as much asthey could—and hoping the world's financial woes soon will pass.