MGN Emperor Bank Plc’s launch into Cambodia’s growing financial industry on Sunday has led insiders to believe that fierce competition in the crowded market will lead to more mergers and acquisitions.

In Channy, president and CEO of Acleda Bank, a leading local bank, said the sector will face fiercer competition as credit consumption narrows.

“The banking sector is currently like an orange. Before we used to cut it into eight pieces but now we cut it into 10 pieces. It means market shares are narrower for each bank,” said Channy.

However, he said creating new products will help operators maintain their competitiveness.

“The number of customers remains the same, but the number of banks is increasing, so we need to have more good products for our customers,” he said.

In the first six months of this year, Acleda Bank provided $3.5 billion in loans to 400,000 customers. Some 90 per cent of these were provided to new start-ups or business expansions, said Channy.

National Bank of Cambodia (NBC) figures show that there are 45 commercial banks in Cambodia, 14 specialist banks, 81 microfinance institutions (MFIs), of which seven are microfinance deposit-taking institutions (MDIs).

Cambodia Microfinance Association Board of Directors vice-chairman and Vithey Microfinance Plc director-general Bun Mony said more banks and MFIs will be the people’s sources of capital for doing business and for the family’s economic development.

However, Mony said microfinance operators may face losses because they cannot compete with big banks.

“Market shares for MFIs will be weaker. They will face strong competition and may even shut down. Big banks are drawing customers away from MFIs by providing small loans,” he said.

In a prakas issued in 2016, NBC required all commercial banks, including subsidiaries of foreign banks, to increase their minimum capital to the equivalent of $75 million from the previous $37.5 million.

Specialised banks are required to raise their minimum capital to $15 million, from $7.5 million, while MDIs are required to increase their minimum capital to $30 million – up from $2.5 million.

The NBC requires MFIs, which are not authorised to receive deposits, to raise their capital to $1.5 million or nearly 25 times more than the previous $62,500.

Analysts have said the NBC requirement will likely lead to more mergers in the sector.

Ngeth Chou, the senior adviser at Emerging Markets Consulting and a financial expert, said the stronger competition will lead to mergers among the banks and MFIs which cannot compete in the market.

He said mergers are a good strategy to prevent risks in the sector, which currently faces tough competition.

Sathapana Bank Plc transitioned from an MFI to a commercial bank in April 2016 by merging with Japanese-owned Maruhan Japan Bank Plc.

However, Channy said that at this stage, there are no signs of risk seen in the sector that will require mergers.

“There is no risk, nonperforming loan ratios are still low,” he said, adding that the banking sector’s nonperforming loan ratio was just two per cent last year.

Approximately 1.14 million Cambodians applied for consumer loans as of the end of March this year – up 5.3 per cent from the end of December – with a loan portfolio of $6.7 billion or up 7.4 per cent, said the Credit Bureau of Cambodia.

NBC last year confirmed that lending in the Kingdom’s financial industry – at both banks and MFIs – amounted to $24.5 billion by the end of last year, a 19 per cent increase from the end of 2017.

However, Channy claims that as operators focus on “world-growing” digital services, more options become available for consumers.

He said more banks and MFIs will make it more convenient for credit consumers to invest and expand their businesses.

“Credit users will feel happier, and there’ll be more banks and more sellers, so they will have competitive interest rates,” he said.