Credit war

via CAAI

Wednesday, 15 September 2010 21:59 Nguon Sovan and Jeremy Mullins

LEADING bankers are concerned that a new offer from Cambodia’s largest lender will undercut market rates, raising the possibility of a price war that could hit profitability.

Cambodian Public Bank (Campu Bank) is set to offer 6 percent interest on loans for customers now financed by other institutions, according to documents obtained yesterday. The offer would not be available to its current customers.

A Campu Bank document said that under the deal a borrower refinancing a US$100,000 loan would save $25,561.34.

Company officials claim the programme is both financially sustainable and common in other countries.

But competitors said yesterday the action could unleash a situation in which banks offer reduced rates in a bid to win back customers. The market rate for loan interest is now 10 to 12 percent, bankers say.

Hwang-DBS country head, Han Peng Kwang, said: “This is definitely below what the market is charging now. If there is a lot of activity, lending rates will be affected.

“Other banks will take protective action to retain customers, and lower interest rates will put pressure on profitability.”

Stephen Higgins, CEO of ANZ Royal, said: “I don’t see how it is sustainable to be lending at rates that are not much higher than they are offering on deposits. Banking is not like the airline business, where price discounting is a viable long-term strategy.”

Higgins also raised questions about why Campu Bank’s existing customers would not be offered the rate.

Canadia Bank vice president, Dieter Billmeier, called the move “a concern”.

“We cannot lower to 6 percent because it’s against market price. Customer deposit rates are high, from 3 to 5.5 percent already,” he said.

He speculated that Campu bank had access to funding from its Malaysian headquarters.

However, a Campu Bank official, speaking on condition of anonymity, said the offer would only be available to select customers, and that although the programme was a new initiative in Cambodia, it was widespread in other countries.

The firm’s 6 percent interest rate was “definitely sustainable”, he claimed, adding it was intended as compensation for those suffering losses incurred by moving banks.

National Bank of Cambodia director general Tal Nay Im said yesterday the central bank did not restrict lending or deposit rates. “It’s a free market,” she said.