Sumitomo Mitsui Banking Corp. (SMBC) has acquired 12.25% of Cambodia’s largest bank by assets, Acleda, furthering the Japanese bank's expansion into Southeast Asia, the two banks said on Monday.
SMBC, the main lending arm of SMFG, paid more than Y10 billion ($97 million) for the stake in the Phnom Penh-headquartered bank, according to a person familiar with the matter. The megabank bought the stake from the International Finance Corporation (IFC) and will become its top shareholder when the deal closes in September.
Founded in 1993 Acleda has grown from being an NGO into a microfinance institution and is now tapping SMBC to help it develop corporate banking services to overseas clients in neighboring countries such as Myanmar, Vietnam and Laos.
“SMBC can help us grow to the next level and we will combine forces to expand in the Mekong region,” said Acleda’s president & group chief executive In Channy during an interview with FinanceAsia.
The world looks set to become even more reliant on Japanese capital in the coming years. As Prime Minister Shinzo Abe’s economic stimulus package loses steam the banks are redeploying their record profits and ample yen liquidity -- $2 trillion worth of deposits in the first quarter of last year -- into faster-growing economies than their sluggish and over-crowded home market.
SMFG said on May 14 that it would become an Asian-centric institution over the next decade after announcing that its overseas loans rose Y3 trillion year-on-year to Y15.2 trillion.
SMFG is the first among its megabank peers to make an equity investment in Cambodia. It opened a Phnom Penh representative office in February 2012, as it looked at ways to tap into the Kingdom's fast-growing economy. Cambodia’s economy has been growing at a clip of about 7% to 8%.
Acleda said it has a domestic market share of about 20% in deposits to 22% in loans. SMBC will have one board seat in Acleda out of nine.
Japanese banks have been following their clients to Cambodia as wages have risen in China and other Southeast Asian countries. Acleda already provides services such as fund transfers and payroll services to around 90 Japanese companies such as: Ajinomoto, Aeon and Yamaha.
SMBC is not Acleda’s only Japanese shareholder. Orix bought a 6% stake in 2013 and has helped Acleda learn about leasing and auto financing.
Corporate lending usually has thin margins, but Acleda is looking to provide a full suite of services to its clients. “We want to make sure we are their bank in all segments,” said In Channy.
SMBC has been deepening its relationship with Acleda since 2012. It signed a memorandum of understanding for a business alliance with Acleda in August 2012 and then in January this year it started helping the Cambodian bank develop foreign corporate clients.
SMBC has obtained approval from the National Bank of Cambodia for the investment. Foreign banks can own up to 100% of Cambodian banks, unlike in many other Southeast Asian countries where there are strict caps on ownership.
Acleda has been expanding in the Mekong region since 2008. “Laos, Cambodia and Myanmar have similar economic conditions and those countries need a bank like Acleda, so we see a great opportunity to capture market shares and have new customers,” said In Channy.
“We want more room to grow in international markets,” said In Channy. It does not have a full banking license in Myanmar as yet.
IFC, part of the World Bank, has invested in Acleda since 1999, when the bank changed from an NGO into a microfinance institution.
“They have spent a long time with us, so it was time for them to move on,” said In Channy who introduced IFC to SMBC.
However In Channy noted they will still retain some links with the bank he noted. IFC provided Acleda with equity capital, tier-2 capital sub-debt, long-term financing, and trade finance. IFC also helped Acleda expand into Laos and Myanmar and remains a shareholder in Acleda’s unit Acleda MFI Myanmar which finances Myanmar’s micro, small and medium enterprises.
“We will continue to support Acleda Bank’s operations in Cambodia, Lao PDR, Myanmar, and other countries in the region,” said Adel Meer, IFC’s financial institutions group manager for East Asia and the Pacific.