Sathapana Bank Plc has received a hefty $50 million bilateral loan from the Bangkok branch of Mizuho Bank, a subsidiary of one of Japan’s largest financial institutions, in a move that banking insiders say will help the newly consolidated bank expand its lending portfolio as it digs deeper into commercial operations.

The loan agreement, billed as the first major offshore commercial loan made by a Japanese megabank into the Kingdom, was signed last week, Sathapana said in a press release. Mizuho Bank is providing the $50 million under a three-year loan term, it said, without disclosing the interest rate.

Sathapana Bank is a newcomer to Cambodia’s crowded commercial bank field. The bank was formed by the merger in April 2016 of microfinance institution (MFI) Sathapana Ltd and Japanese-owned Maruhan Japan Bank. The marriage created a commercial bank with a combined registered paid-up capital of $120 million and total assets of $772 million, according to its financials at the time. The combined loan portfolio amounted to $533 million, while total deposits were $367 million.

The transition from MFI to commercial bank can be an expensive and time-consuming process, say those who have completed the process.

In Channy, president and CEO of Acleda Bank, which completed its own transition in 2003, said Sathapana would need to take on larger borrowers and scale up operations to generate a return on investment. He said fledgling commercial banks typically face insufficient levels of funds when restructuring away from the MFI format and could not rely on existing shareholders for expansion.

“When Acleda first transformed itself from an MFI to a commercial bank, we also had to take loans from other institutions beside our shareholders,” he said.

“We always chose the best option that provided good long-term loan conditions with low interest rates.”

Just a month after completing its merger last year, Sathapana Bank announced that it had secured a $35 million syndicated loan from seven foreign banks and facilitated by Taiwan’s First Commercial Bank.

David Marshall, a partner at local investment firm Mekong Strategic Partners, said Sathapana Bank likely received a favourable rate on its $50 million credit line from Mizuho Bank given its strong standing in the Japanese market.

“[I] suspect that Mizuho is providing a very good rate relative to depositors and perhaps is secured with outside assets in Japan,” he said.

"Strategically it may make sense to borrow offshore if the funding is cheaper than local sources, inclusive of the interest rate Sathapana is being charged, the withholding tax they have to pay on the interest from offshore lenders and taking into consideration the reserve requirements of 12.5 percent they have to hold on borrowed money."

He pointed out that despite Sathapana Bank being owned by Maruhan Group, a large Japanese entertainment company, its parent company could be constrained to lend directly due to country-specific lending limits or bank-specific risk exposure.

Marshall added that the large loan facility from Mizuho Bank, which earlier this month received its own Cambodian commercial banking licence, was a positive sign for the future of the Kingdom’s financial industry.

“Because [Mizuho] is a large Japanese multinational bank lending into the Cambodian banking sector, it is likely to provide an upside by improving the image of Cambodia and bolstering confidence in the financial sector,” he said.

Sathapana Bank representatives were not available for comment yesterday.