The Melbourne-based bank will sell the shares to institutional investors at A$14.40 each, a 7.5 percent discount to its last traded price, and will not increase the size of the offer, it said in a statement Wednesday.

CEO Mike Smith, who joined ANZ after running HSBC Holdings Plc’s Asian operations, is raising funds as Australia’s economy sinks to its first recession in 18 years. ANZ is up against HSBC and Standard Chartered Plc in its bid for RBS’s Asian assets, which range from trading desks in Australia to bank branches in Pakistan.

“Buying distressed financial assets at a weak point in the market is a good strategy, but you have to have the financial strength to run the business through the remainder of the trough,” said Angus Gluskie, who manages about A$260 million at White Funds Management Pty in Sydney.

The placement has been underwritten by Deutsche Bank AG, JPMorgan Chase and Co, and UBS AG.

The bank will also sell equity to retail shareholders and reserve the right to scale back applications under the share-purchase plan if total demand exceeds A$350 million.

In Wednesday’s statement, ANZ said its charge for credit derivatives losses had declined by about A$400 million after tax since March 31, reflecting lower credit spreads globally and a stronger Australian dollar. That improvement has been “largely offset” by a reduction hedging gains, it said.

On April 16, ANZ confirmed it had been invited by RBS to participate in the sale process for the lender’s Asian assets.
Obtaining the Edinburgh-based bank’s Asian businesses may help Smith meet a goal of boosting the portion of revenue earned in Asia to 20 percent at a time swelling bad debts squeeze ANZ’s domestic profits.

RBS, Britain’s biggest government-owned bank, this month posted a first-quarter loss after writing down £4.9 billion ($7.8 billion) as credit-market investments soured and bad loans increased in all its markets.

The bank serves more than 30,000 retail and commercial customers in China and is one of the ten biggest foreign-owned wholesale banks in the nation, according to its Web site. In India, it serves 1.3 million customers, while in Indonesia, it has 360,000 customers, the site says.

ANZ’s capital raising is “a positive thing to do”, said Peter Vann, who manages more than A$600 million at Constellation Capital Management Ltd in Sydney. On the RBS bid, Vann said “if it’s a sensible price and the deal stacks up, I’m happy. It’s a good time to buy something, it’s cheap”.

ANZ, which didn’t say which RBS assets it is pursuing, said an acquisition would initially reduce earnings per share before contributing to profit in the medium term.

The share sales would allow ANZ to fund an acquisition of the selected RBS Asia assets while maintaining its Tier 1 capital ratio, a key measure of financial health, above its target range of 7.5 percent to 8.0 percent, it said. BLOOMBERG

(The original article is extracted from the Phnom Penh Post)

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This move showed Phnom Penh was clearly out of sync with the world’s major financial centres and impervious to the credit crunch that had forced New York, London, Paris and Tokyo into unprecedented crisis.

In a clear sign of Cambodia’s lack of integration into the global financial community, the National Bank of Cambodia (NBC) was taking measures to rein in a rapidly increasing money supply even as much of the developed world was trying desperately to increase liquidity.

Although Cambodia’s financial sector had escaped direct impact from the financial crisis – which hurt developed Asian economies such as South Korea – it was exposed to threats.

“Cambodia’s banks are not exposed directly to the fallout from the build-up of toxic assets in Western banks,” said the Economist Intelligence Unit (EIU) in its April outlook for Cambodia. “But they are vulnerable to domestic problems, including the recent bursting of the property bubble and the general downturn in the economy owing to the global slowdown.”

It was not the first time vulnerabilities had been pointed out. Following IMF consultations with Minister of Economy and Finance Keat Chhon and National Bank of Cambodia Governor Chea Chanto in Phnom Penh from late October to early November last year, the International Monetary Fund noted that the global crisis “has exposed vulnerabilities among Cambodia’s banks and is beginning to affect their financial soundness”.

When the financial crisis began to spread across the globe, Cambodian banks had continued to operate in their own world.

As lending continued to increase, in large part driven by heady returns in a booming property market, loans began to catch up with the strong deposit growth of recent years.

Lending overstretched
The IMF warned that the loan-to-deposit ratio had reached 100 percent in October, up from just 68 percent a year earlier with “a move toward more risky lending activities”.

Suddenly, South Korean construction companies, scared off by the worsening economic situation, withdrew their money and left, the IMF said, even as mortgage lending and consumer loans were expanding.

Non-performing loans (NPLs) were also being under reported: “Mid-year audits by the National Bank of Cambodia revealed NPLs [as a share of loans] higher by two percentage points than previously reported by banks,” the IMF said in February.

At the end of 2008, the EIU noted that outstanding stock of credit to the private sector had increased 54 percent over the year to 9.9 trillion riels (US$2.4 billion).

It has awarded Cambodia’s banking sector a CCC credit rating, which Fitch Ratings classifies as “a current perceived possibility of default”. At this level of risk Cambodia’s banking sector is considered to have a high level of outstanding credit given that other CCC-rated countries saw a median increase in credit over the year of just 23.8 percent, or less than half the rate of growth in Cambodia, the EIU said.

In its February report outlining these underlying problems, the World Bank noted that “two large banks” were threatened by NPLs while the IMF went further shortly afterwards, noting that “several large [banks] could face a large deterioration in credit quality and a need for recapitalisation”.

Both organisations have repeatedly refused to identify the banks in question, with International Monetary Fund resident representative John Nelmes reiterating that the IMF “does not discuss or speculate about individual banks”.

What is certain is that borrowing growth has fallen and NPL rates are up. Canadia Bank saw NPLs rise to 2.35 percent last year from less than half a percent the year before, according to bank data. The microfinance sector at the end of the first quarter said bad loans would rise to more than 1 percent this year.

“According to official data, the ratio of NPLs to total outstanding loans edged up slightly in 2008, to stand at 3.7 percent at the end of year,” the EIU said last month. “Non-performing loans will rise in 2009-10, although official data may not reveal the true extent of the problem.”

Cambodia’s high exposure coupled with a perceived lack of openness meant the financial system was beginning to attract negative attention, adding to underlying weaknesses.

“Confidence is obviously a key issue, and banks will be reluctant to reveal the true extent of non-performing loans if the situation is bad/worse than previously thought,” the EIU’s Cambodia analyst Danny Richards said in an email Wednesday. “However, an opaque banking system is also a breeding ground for rumour and negative speculation.”

The EIU has slowly increased its risk rating for Cambodia, from 68 out of 100 in December to 69 in January and up to 70 last month, the highest level in the past two quarters.

With loan-to-deposit ratios narrowing, banks are now looking to increase deposits, offering high rates to attract customers – the fixed deposit 12-month rate on dollars at Advanced Bank of Asia was 8 percent this week, ACLEDA was offering 7 percent, and May Bank, the lowest on the market, was offering 3.75 percent.

“The kicker is, higher deposit rates ultimately lead to high loan rates, which become a ‘tax’ on businesses and consumers,” James Lowry, ANZ Royal Bank’s head of corporate and institutional banking, said Thursday. “If borrowers’ capacity to service loans is impinged by higher interest rates, then people tend to borrow less or be restricted in how much banks will lend them, thus impacting lending activity.”

Cambodia found itself caught between a rock and a hard place. At the same time as banks faced narrowing loan-to-deposit ratios and mounting exposure to bad loans, domestic firms, and developers in particular, were crying out for financing as the economy teetered on the edge of recession. Where banks were willing to lend at all, money was not going cheap.

Many other countries have seen interest rates plummet – the US benchmark rate has been lowered to below 0.25 percent, Thailand’s rate has been slashed four times since December, and the Eurozone rate was predicted to be lowered to 1 percent this week, AFP reported.

In Cambodia, this has not been possible. Where other countries had been able to adjust interest rates to calibrate a response to the unprecedented failings of the global financial system, Cambodia’s dollarised economy meant that the NBC did not have the same tools at its disposal.

“The NBC lacks most of the conventional monetary instruments that other central banks have. Currently they use reserve requirements and intervention as their main monetary policy tools,” Nelmes told the Post in March.

Central bank response
As it became clear that Cambodia’s economic growth was beginning to decline, the NBC reacted in January by widening money supply, lowering the reserve requirement by 4 percentage points to 12 percent to boost liquidity. This time, it also introduced measures to improve oversight of loan quality, drawing praise from the IMF for its handling of the complex problems facing the financial sector.

A decrease in the reserve rate, a new temporary overdraft facility for banks suffering from dangerously low liquidity, increased supervision and improvements to the lending provisions system mean the central bank “deserves to be commended for strengthened efforts at managing the risks”, Nelmes said Thursday.

“A next step will be to introduce reforms that help to build an inter-bank market, so that banks can more easily trade liquidity among themselves to manage their liquidity needs.”

The question remains whether these measures will be sufficient to stave off the worst of the impact of the crisis on the domestic banking system.

A spate of balance sheets for 2008 released last month by Cambodia’s private banks showed nothing untoward, but it may not be until 2009′s results are released next year that we see the true impact of the crisis given the largely hidden nature of the underlying problems thus far.

“The lack of openness is clearly worrying – potentially storing up greater problems in the future in terms of taking action to clean up balance sheets,” said Richards.

(The original article is extracted The Phnom Penh Post)

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The IMF blamed “slowing external inflows” for the reduction in free capital in the banking system despite recent efforts by the National Bank of Cambodia to ease the liquidity situation, including a reduction in the reserve requirement from 16 percent to 12 percent from February 1.

“The [IMF] mission and authorities also agreed that some scope remained for further monetary easing in 2009 as inflation pressures ease,” said an IMF statement.

The main liquidity adjusting option available to the central bank, sector sources say, is to bring down the reserve limit further in a bid to reduce redundant capital in the system.

“They [the authorities] could go back to eight percent,” said John Brinsden, vice chairman of ACLEDA Bank, referring to the central bank’s reserve requirement prior to late July, when it was doubled to 16 percent to stave off inflation and excessive lending.

Anthony Galliano, head of corporate and institutional banking at ANZ Royal, wrote in the Post last week that “a further [reserve rate] reduction would be greeted positively by banks that would welcome additional liquidity to lend into the economy”.

This is one of the few options available to increase liquidity in a dollarised economy such as Cambodia’s, he added.

Measures limited
While the IMF described January’s lowering of the reserve requirement to 12 percent from as an “improvement”, Brinsden said that in practice the change had resulted in few practical benefits due to other liquidity-curtailing measures imposed by the central bank.

Private banks are now required to maintain a certain level of liquidity on individual currencies, he said, rather than an overall liquidity ratio, meaning that banks cannot offset different currencies against each other.

Also, “banks have been running more liquidity than they normally would to be on the safe side”, Brinsden said.

The central bank at the end of January enacted a measure affording banks with short-term liquidity problems a new overdraft facility that the IMF welcomed as a “substantive” action to help address Cambodia’s liquidity concerns.

(The original article is extracted from The Phnom Penh Post)

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“Had it not been for the world economic downturn, we would be expecting rapid development of banking technology – because that is always the case when one starts from behind,” said Chum Sirath, managing director of Net I Solutions Co Ltd, a leading local IT firm.

Chum Sirath said that because services such as mobile banking and ATMs were new to the country, local banks could install cutting-edge systems immediately without having to perform costly upgrades on outdated technology. And, he said, they ought to do more – for instance, customers are not able to bank electronically.

Phu Leewood, secretary general of the government’s National ICT Development Authority, said the country was in the comparatively early stages of IT enhancement in the banking sector. He said the banks ought to use the global downturn as an opportunity to upgrade.

“IT is an essential investment that we can’t leave behind,” he said.

One area where money will be spent is in expanding the country’s ATM network. ACLEDA, ANZ Royal and Canadia are all looking to add to their networks – adding as many as another 60 machines countrywide by the end of this year.

Sao Volak, chief executive of Campura Systems Corp, which does systems integration, said that impressive gains in banking technology have been made in the past few years as the number of ATMs increased and credit-card usage rose.

“Cambodian banks are embracing technology to entice more customers, and they view technology investment such as core banking, ATMs, electronic payment systems, mobile banking, network connectivity and credit card facilities as strategic assets to drive business rather than just to provide a link for customer services,” Sao Volak told the Post by email.

“When financial markets recover, technology use will expand with it,” he said.
Terry Mach, IT manager of ACLEDA Bank, said only a minority of businesses in the country were using technology that meets international standards. Banks are among the most important consumers of high-end technology here and are willing to spend more on IT development.

“Banks normally spend US$300,000 to $400,000 updating software because new versions are always available every year,” he said. “But we don’t generally catch up with all versions.”

Core banking software was shown in a 2008 international study by Temenos Research to be the main component of banking IT expenditure – more than 80 percent of banks surveyed said their top priority for spending was their core banking system.

Chum Sirath at Net I Solutions said he expected that the proposed stock exchange would increase the country’s technology development as local financial institutions raced to upgrade to international standards.

“Local banks need to continue investing in technology and position themselves for an economic recovery,” he said.

(The original article is extracted from The Phnom Penh Post)

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New SMS based-mobile phone payments services, WING, which is ANZ’s new branchless banking service, will enable rural Cambodians to make low-cost person-to-person payments and transfers directly from their mobile phone, and reducing the risks associated with handling large amounts of cash.

Before transferring money, subscribers have to open virtual bank accounts on their cell phones without going to banks. In order to deposit money into their accounts, subscribers just visit any of WING’s 70 agents – typically phone retail shops – of which 60 are located in Phnom Penh and 10 are in Kompong Speu, Takeo and Kandal provinces.

While approaching the WING shops, a customer just dials the WING service number and types codes or commands into their cell phone depending on whether the desire is to deposit or withdraw funds. And then, retailers either dole out or collect the cash, and in turn make a profit from transaction fees.

During WING’s launch on Tuesday, Mike Smith, ANZ’s CEO, said that “WING will help improve people’s livelihoods and reduce poverty by increasing their access to banking services,” he added that mobile banking – also known as M-Banking or SMS Banking – has already taken root across the developing world, and Citibank introduced a similar system in the United States in mid-2007.

Money transfer to non-WING customers incur a $1 fee, while transfer to WING customers incur at most a fee of 1 percent of the transaction value. By the way, there is no minimum transaction, but the maximum is $1,000 in any one day.

Meanwhile, the mobile phone payments services have proven successful across developing countries, such in Philippines in 2005, South Africa, Kenya and Latin America.

National Bank of Cambodia’s deputy governor Neav Chanthana, lauded the ability of mobile banking to provide financial services to those without access to standard bank accounts, according to the Cambodia Daily.

“WING provides our population, no matter where they work in Cambodia, the ability to stay financially linked to their families faster and cheaper than ever before,” said he.

WING is currently only functional on Telekom Malaysia International’s 015 and 016 prefixes, WING Managing Director Bran Jones said, he added that the service should be available within three to six months through all mobile providers.

So Ponnary, executive vice-president and chief operating officer of ACLEDA Bank, agreed the technology was well suited to the Cambodian context and added that ACLEDA was hoping to launch its own mobile payments system by the end of 2009, quoted by the Phnom Penh Post.

ANZ Royal Bank is an international standards bank, which is established by Australia and New Zealand Banking Group Limited (ANZ), a global corporation with over 170 years of international banking experience and one of the top 50 banks in the world, and the Royal Group of Cambodia, one of Cambodia’s largest corporations. ANZ holds 55% of total shares on issue and Royal Group holds 45%. Banking service offered included Access transaction account, Savings Account, Business Account, Term Deposits, Cash Management Account, Telegraphic Transfer, Home Loans, Business Loans, Trade and Payment, and Markets products, ATMs and Credit cards.

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In an effort to tighten and strengthen the banking sector and to lower the inflation, the National Bank of Cambodia (NBC) has tripled the minimum capital requirement for commercial banks in Cambodia. According to the NBC’s Prakas on new capital requirement and criteria for licensing approval on September 19, 2008, commercial bank reserves were raised from 50 billion riel (US$13 million) to 150 billion riel (US$36.5 million), and specialized bank reserves from 10 billion riel (US$2.5 million) to 30 billion riel (US$7.5 million).

Prakas read that banks, which obtained license or principal letter before this Prakas is issued, shall increase their capital to the minimum capital no later than the end of 2010.

Following the onset of the global financial crisis, the NBC raised minimum requirement. Its tightening measures also included stricter rules on lending to the property sector.

The tripling is an obstacle for small and newly-opened banks entering Cambodian market but it helps large banks become bigger.

It was because of the increase in the minimum capital requirement and less than a hundred customers, the Singaporean commercial bank VIP announced it would be shutting its operation in Phnom Penh after it opened in August 2008 and closed in December 2008.

National Bank of Cambodia (NBC) was recreated on October 10, 1980, as the central bank of the country. The NBC plays two main important roles in the context by acting as a monetary authority and as a supervisory authority over the commercial banks in Cambodia.

According to the NBC’s official figures, Cambodia has 25 commercial banks, six specialized banks and 17 microfinance institutions.

Tal Nai Im, NBC’s director general, said that the new commercial banks requirements are aimed at making it more difficult for prospective banks to enter the sector in Cambodia. Adding that “some banks that don’t have the minimum might have to withdraw”

The increase in the bank reserves does not affect the four main banks – Acleda, ANZ Royal, Canadia and the Cambodian Public Bank.

“I think that the tripling can help Cambodia’s economy in the future. It will not kill the small banks,” In Channy, CEO of Acleda bank, quoted by the Phnom Penh Post.

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