Financial InformationChairman's Report

Chairman's Report

The Year

In many respects 2014 has been the most testing year for the banking industry in Cambodia since 2008. For ACLEDA Bank a number of factors, both internal and external, have challenged management and staff to the limit and forced a new approach to the way we look at risk.

The aftermath of the political and social disruption following the contested elections of July, 2013, continued to affect the first six months of 2014 and had a serious effect on profitability resulting in a half-yearly Net Profit After Tax (NPAT) down by 3.33% over the same period in the previous year in spite of a growth of the loan portfolio of 16.9%.

The second half was characterized by increasingly fierce competition for lending. As deposits returned to the banking system margins were put under considerable stress with Microfinance Institutions playing a significant role for the first time.

A third feature of 2014 was the growth of the banking network both with the arrival of newcomers and the opening of new branches by existing players. Whilst this, as noted above, certainly had an impact on margins, an additional consequence was to drive up pay levels and increase competition for qualified staff. Coupled with an anticipated knock-on effect from the recent adjustment to the statutory minimum wage for the garment and footwear industry, this presents management with some serious future challenges in managing our cost base.

So how did we do?

Profitability recovered by the end of the year and the unconsolidated result for 31st December reveals an NPAT of US$82.2 million or a 5.73% increase over the previous year. This resulted in an Earnings Per Share ('EPS') of US$0.36. Whilst this is 12.95% less than 2013, the difference is due to the increase in the share capital from retaining the previous year's profits.

Your Board recommends that the distribution will remain on the previous basis of paying out 50% in common stock with the remainder transferred to the General Reserve.

While portfolio quality remained satisfactory with Nonperforming Loans ('NPLs') at 0.36% of gross loans vs. 0.55% in 2013 (partly due to an expansion of the portfolio) the Return on Equity slipped below 20% for the first time since the financial crisis of 2009. Even allowing for the dilution effect of retaining earnings this is still a disappointment and both your Board and management will have this in their sights in the immediate future. However, the main priority is to ensure that the Bank's Capital Adequacy and Solvency Ratios are maintained at a conservative level with a comfortable margin above the statutory requirement of 15%. At the end of 2014 the Tier 1 Capital to Risk Weighted Assets stood at 19.8% while Tier 1 & 2 was 21.1%.

Elsewhere, whilst ACLEDA Bank Lao Ltd. had a difficult year in a struggling business climate and ACLEDA MFI Myanmar Co., Ltd. faced a constantly changing regulatory environment of a reforming economy, I will say that overall the group finished the year in robust shape.


During 2014 there were a number of changes to the governance of the Group. The most significant was the retirement after more than 15 years on the job of Mr. CHEA Sok, our first Chairman. Mr. CHEA Sok had a long and distinguished career, both in commercial banking and latterly as Deputy Governor of the National Bank, before joining ACLEDA in 1999. I'm sure the shareholders, directors and staff will join me in thanking him for his enormous contribution to the Bank and wish him and Madam SOK Balen a long and happy retirement.

I was appointed by the Board as his replacement until my own retirement later this year.

There were also a number of other changes to the Board in 2014.

Mr. Yves JACQUOT, Mrs. SOK Vanny, Mr. LONH Thol and Mrs. Ritva LAUKKANEN resigned and our thanks go to them all for the great service they have rendered ACLEDA over the years.

Dr. IN Channy, formerly President and Group Chief Executive Officer joined the Board in the new role of President and Group Managing Director. He is also Chairman of the Boards of ACLEDA Bank Lao Ltd. and ACLEDA MFI Myanmar Co., Ltd. Mr. CHHAY Soeun, who retired last year as Executive Vice President and Group Chief Finance Officer, Mr. RATH Yumeng, Mr. Vincent GROS and Mr. Tetsuro YOSHINO have likewise been appointed as Directors. Their profiles appear in this link and needless to say we give them our best wishes in their new responsibilities.

One area which has been taxing your Board has been the dearth of Independent Directors. The banking regulations initially required that the committees charged with Audit and Remuneration should be chaired by 'independent' directors. From the beginning we conformed to the original Prakas which was issued in 2008. However, the regulators have since introduced a stricter definition as to what constitutes 'independence' as a result of which only one of our Board is qualified. Whilst he has since taken over as the chair of the Audit and Compliance Committee and we have been given some leeway by the NBC, we have undertaken to regularise the position before the end of this year. The Board, under the guidance of the Remuneration and Nomination Committee, is addressing this issue with urgency.

The future

The strategic direction for the Group is of course a matter of constant concern for both the Board and management. After so many years of double (and even triple) digit profit growth, expectations are high. But we must be realistic and recognise that neither the Bank nor the market are what they were ten years ago. Increasing harmonisation within ASEAN, which kicks off this year, will bring new opportunities but also new challenges. The competition will be fierce.

Regulations will become an increasing preoccupation in the daily life of a banker and we have to get used to it. For those banks that recognise this and adjust to the changing circumstances the rewards will be there but above all the financial sector in Cambodia needs to recognise this, cooperate more and embrace the reforms that are bound to come.

Some 15 years after it was first mooted, we still do not have a functioning inter-bank money, foreign exchange or debt market - and this in a country whose economy has averaged double digit growth!

In terms of the number of players, the banking sector in Cambodia has grown by leaps and bounds but it has been ACLEDA's consistent view that in the long run this will be good for the country. Competition improves the breed and at the same time helps customers. ACLEDA will set the example.

I would like to thank our customers and shareholders for their support during 2014 and, above all, our great staff for their hard work, loyalty and on-going dedication to the ACLEDA family.

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