Since its launch in 2005, ANZ Royal Bank has grown to become one of the top-end banks in Cambodia, and has increased its focus on core areas of e-banking, corporate clients and introducing efficiencies in its operations.

In his last week as CEO of ANZ Royal, Grant Knuckey, sat down with the Post’s Ananth Baliga to discuss growth of the bank and financial sector, as well as potential systemic risks that financial institutions could face.

How do you see ANZ Royal moving forward?

We want to be the best in the things we focus on. We don’t want to do everything, and we’re not a mass-market player.

So what does that mean? That means continued innovation on the electronic banking side. Most recently we have made some big investments in a corporate electronic banking platform. The next stage will be to do something similar on the retail side.

From our point of view, Cambodia will move in that direction. One implication that will have on us is future branches. In five years time, branches won’t be used as just massive cash dispenser and collection points. The weight right now is on branches, but we think that will change, and it will gradually toward more electronic channels.

On the corporate side, we will continue precisely in the direction that we are currently headed. We are a relationship branch and for the corporate customer we differentiate primarily through our relationship and the advice that comes with that – and, increasingly, with the efficiency we can give our customers through electronic platforms.

Where do you see the most growth potential in banking?

In electronic banking. The usage of that channel will increase rapidly and there is infrastructure being created at a national level, such as the FAST system from the National Bank of Cambodia [NBC]. My view is that this has implications for branch banking. I don’t see massive branch expansion being a theme going forward. I see a consolidation in terms of branches.

Deposit-raising has not been a prominent theme in banking here at all. It has been a peripheral activity for a lot of banks here, which have focused all their attention on loan growth. That’s already changing, largely driven by the liquidity coverage ratio [LCR] that was introduced by the NBC.

I think another theme throughout the sector will be increasing efficiency and not trying to drive returns just through growth. The last five years have been only about growth, and efficiency was secondary for most banks. Loan growth will slow because of the LCR and partly because the economy and region is in a slightly slower growth phase. Returns will come under pressure and efficiency will become a bigger theme.

There have been calls to raise the minimum capital requirement, given the position of the banking sector. Is there a case for the NBC to look into that?

Yes, I think it is likely the minimum capital requirement will be raised. I don’t know when, but I think it is likely. Given the very rapid growth of credit, the current minimum level is a little light for this level of credit in the country. So I think it will be increased.

Will that force some marginal banking players to really consider their future? Absolutely. Will that be a catalyst for potential M&A [merger and acquisition] activity? Probably. No doubt some of what we have seen in the MFI sector is reflective on that – bringing in new capital and technology.

The NBC has stepped up its enforcement of supervisory laws and regulations. Do you think we will see more of that?

I think the LCR is the most important change in the banking sector probably in the last decade. And it is very important going forward because it does induce behavioural change and the bottom line is it will create a safer banking sector and lower systemic risk.

I think the NBC is rightly prioritising the areas it seems are most risky. One is clearly liquidity and the relationship of that to credit growth. When it comes to specialised banks, those are really unique entities that have no systemic risk on their own because they are very contained entities, both strategically and in terms of their license parameters.

What we are seeing is a focus from the NBC on two main things: putting in place more prudential measures that will contain more systemic risks, and promoting and putting in place financial and electronic infrastructure, which hasn’t been there before. This will help us move away from this cash, cheque and manual-driven model toward a more electronic process.

What are the systemic risks that the banking sector could face?

Cambodia has been relatively economically insulated in the last few years, particularly in the last 18 months when much of the region has slowed considerably. Cambodia and Vietnam have stood out as being able to maintain a strong growth path in the midst of their regional peers, who are all experiencing growth issues. Cambodia’s economic profile has a relatively low sensitivity now to regional growth.

China’s slowdown has had little impact as the only real export is agricultural food products. And China’s slowdown has not been a consumption slowdown but rather an industrial one, so no impact for Cambodia there. And on the flip side it has helped lower our imports.

But when you look at some of the other countries in the region you can see what can happen when you being to get into that spiral where growth starts to slow and banks become more circumspect and cautious about lending. And as banks start to restrict their lending appetite, which starts to restrict the cash flow of corporate, who then start to experience their own cash flow crunch and slow their own activities. It can be a vicious circle.

Does that risk exist in Cambodia?

Yes it does. It hasn’t happened because banks have been happy to continue growing credit rapidly and there has been ample credit available for businesses that are looking to grow. So it hasn’t been an issue. It is possible an external event or a large shift in behaviour of the banking system – if it happens too abruptly – can lead to a rapid fall in credit growth and that starts to feed into business activity. There’s no sign of that, but it’s possible.

This interview has been edited for length and clarity.