Hattha Kaksekar’s Journey to Become a Commercial Bank Soon

KHMER TIMES
MAY KUNMAKARA

Hout Ieng Tong, president and CEO of Hattha Kaksekar Limited. KT/Chor Sokunthea

In late September, Hattha Kaksekar Limited (HKL), one of the leading microfinance institutions (MFIs) in Cambodia, sold a 100 percent stake to The Bank of Ayudhya (Krungsri), a Thailand-based subsidiary of the Bank of Tokyo-Mitsubishi.
Hout Ieng Tong, president and CEO of HKL, sat down with Khmer Times’s May Kunmakara to talk about the recent deal, the company’s future plans after selling to Krungsri, and the performance of the finance sector.

KT: On September 22, Thai-owned Krungsri acquired a 100 percent stake in your MFI. Why do you decide to sale it as your business had been performing well?

Mr. Ieng Tong: HKL is not a fully owned Cambodian company. Our local shareholding is at 20 percent, while the remaining 80 percent is owned by foreign interests in Holland, Sweden and Norway. Both local and foreign shareholders have worked together to make HKL grow to what it is today. We’ve grown big enough to become a commercial bank and we need a strategic shareholder to make us realize that vision. For that reason, we decided to get Krungsri on board. Krungsri is one of the top five banks in Thailand.

If we look at the shareholders of Krungsri, they are also big players from Japan’s Tokyo Mitsubishi Financial Group – which is ranked number one in Japan and fourth in the world. So with Krungsri’s reputation, and their inclusion as a strategic shareholder, it makes it easier for us to become a commercial bank. With this confidence in place, our previous shareholders felt comfortable and agreed to transfer their shares to Krungsri.

KT: How will your main business operations change, now that Krungrsi has a 100 percent stake in HKL?

Mr. Ieng Tong: I need to make a clarification on this. Although we have a new shareholder our main business operations still remain the same. We will still provide loans to customers and even the name Hattha Kaksekar Limited will be retained.

All that’s changed are the shareholders and a few members of the board of directors. From the CEO level downwards, there have been no changes. In fact, we will be employing more staff at the management level. We will be expanding and opening up new branches.

KT: This March, the National Bank of Cambodia issued a prakas that increased the reserve requirements of financial institutions. That prakas indicated that financial institutions are required to hold sufficient eligible assets with the central bank to effectively support safe and sound operational liquidity management. Was this a factor that pushed you to sell to Krungsri?

Mr. Ieng Tong: Well, we do appreciate the recent measures taken by the National Bank of Cambodia over the increase of the reserve requirements. This will make the sector stronger and more sustainable. But this rise in reserve requirements does not cause us any problems. With our previous shareholders, HKL’s registered capital was already at about $70 million. The new requirement is a minimum of $30 million – so we are okay.

We changed shareholders to expand our business and provide better services to our customers. Let me again stress that the new reserve requirements stipulated by the National Bank of Cambodia is laudable and will ensure the health of the finance sector. Of course many small MFIs are in a quandary with these new reserve requirements. Most of them have a registered capital of around $100,000 to $200,000. So it will be a problem for them to meet the new reserve requirements.

KT: Will you then plan to become a commercial bank as you have another $150 million as capital, with the sale to Krungsri?

Mr. Ieng Tong: Of course. That has been part of our strategic vision. But before we make that leap, we also need time to study ourselves to make sure that we are prepared to make that complete transformation.

With that in mind, 2017 will be a crucial year to assess ourselves. It’s a time for us to learn what we need to be in order to make that giant leap. It is also the year for us to put things together to meet the requirements of the regulator. With a plan in place, we will submit our application in 2019 for a banking license.

KT: As the number of new players keep increasing, how will that affect the code of conduct of the industry? As president of the Microfinance Association of Cambodia (MAC), what can you tell us about this? How will the sector keep growing in a healthy and sustainable manner?

Mr. Ieng Tong: We are indeed concerned with new players and the increase of MFIs in the sector. From my perspective with more MFIs, there will be better discipline. The public needs financial services that are convenient, reliable and competitive. And this can only happen if they have more choices, with MFIs offering better interest rates and fast service.

MAC plans to set up training workshops for its members to ensure that they clearly understand their public social responsibilities. Competition is healthy, but we have to ensure the MFIs don’t kill each other and play fair when they serve the public. Foul play hurts the sector and gives it a bad name.

I will be pushing for a memorandum of understanding to be signed by all MFIs in the country. This will cover a code of conduct that will ensure the sustainability of the sector in a healthy business climate.