Over the past 12 months, we faced some challenges including i). Increase of the non-Performing Loan ratio across the whole financial sector, ii). Regulatory changes (interest rate cap and new loan classifications). However, PRASAC continued to serve the vast majority of its customers with limited impact. While the interest rate cap affected the microfinance sector as a whole, we expected the small loan (<USD1,500) and group loan segments of the market to be most affected given significantly higher interest rates and higher operating cost of service. These loan products represented less than 5% of PRASAC’s total loan portfolio.
Importantly, PRASAC’s scale and efficiency makes it well positioned to handle this difficult period. In order to mitigate this effect and maintain our strong financial performance, we implemented the following strategies: 1). strengthen our market position and continue expanding our portfolio with growing customer needs; 2). appropriately realign loan pricing and fees in response to the new regulations; and 3). lower operating costs by increasing staff productivity, eliminating unnecessary administration costs, and rationalizing small or loss-making branches.
Our 2017 results demonstrate that this strategy continues to deliver success and delivered against challenging, show how PRASAC continues to bring our strengths and capacities to bear lowest NPL in sectors, high staff productivities, effectively managed costs, strong client relationship, prudent capital and risk management and highly engaged staff. We have a strong culture, and high standards of integrity, trust and ethical behavior in all of our businesses; we have a shared pride in our performance; a successful history and our footprint is unique among our competitors allowingthe creation of long-term value for our stakeholders.
In year 2017, PRASAC maintained its position as a market leader with the largest branch networks, high return, and loan portfolio, with a proven record of sustainable growth. Some key operational highlights were:
- Total assets at year-end were USD 1.75 billion, growing 40.4% compared with the end of 2016.
- Total loan portfolio were USD1.55 billion, increased by 50.2% with the total of 390 thousand borrowers
- PRASAC maintained its leading position in loan portfolio quality in the sector with the Non-Performing Loan (NPL) at 0.75%.
- The deposits outstanding balance reached USD 915 million with the total of 538 thousand depositors
- After-tax net profit increased by 6.5% to USD 57.5 million from USD 54 million in year 2016.
- Return on Equity (RoE) was 28.8% and Return on Assets (RoA) was 3.8%.
- Office network covering all 25 provinces and cities through 176 outlets, 130 ATMs, 7,058 staffs and operating in 13,851 villages – equal to 98% of total villages.
Executing on a focused & consistent strategy
Our strategy is focused and consistent. We are committed to delivering high-quality growth, industry-leading returns and long term value. The strategy is also built to delver high asset quality and sustainable earning growth, and we will pursue opportunities that are aligned to our view of market trends, build on our strengths and deliver strong returns to shareholders.
We are the market leader and the largest MDIs by both assets and loan portfolio. We are focused on extending our lead through our size, scale, breadth and ability to cross-sell of products and services.
Building the even best financial institution
Looking ahead, our operating environment will continue to be shaped by rapid changes in the financial industry and regulatory change. Moving forward, PRASAC continues to grow organically.
Competition in market
Competition is an important characteristic of a market, and drives better outcomes for clients, such as lower prices and more choice. Competition for market share in retail banking, including from non-banks, improves client’s welfare through lower prices, more choice, better products and improved quality and access to services. In the long term, client benefits are also crucially dependent on a stable and robust financial system in Cambodia.
The banks and financial institutions we compete against have generally returned to strength. We are also experiencing increased competition in certain geographies and business segments from new market entrants. Notwithstanding increased competition, we remain well positioned and are making the necessary investments in people, processes and technology to deliver on the needs of new and existing customers throughout our footprint.
The financial services industry has been subject to increased regulation over the past several years especially year of 2017, and we are optimistic that we are through the majority of the changes. PRASAC has been responsive to changes in regulation and has invested considerably to adapt to the new standards. Our liquidity profile is solid and our common equity Tier 1 ratio is strong and complies with regulation. We are confident that, on balance, new regulations have made us stronger and better financial institution.
Continuing to build on a strong foundation
PRASAC has a great foundation to continue to build a strong culture, integrity, trust and ethical behavior in all of our businesses; we have a shared pride in our performance; we have a successful history; and our footprint is unique and coveted by many lenders and stakeholders around the world. Throughout PRASAC, employees place great value on working together and they share a genuine desire to serve our customers. The high productivity of our 4,100 credit officers and extensive network of 176 branches provides us with significant operational flexibility and stability. Our cost-to-income ratio of 39% is among the best in the industry and materially lower than most other industry participants. We believe that these aspects will continue to underpin PRASAC’s industry leadership position and cost competitiveness.
Leading through Confidence
While regulatory changes, the interest rates cap, market volatility and increasing competition will pose some challenges, we also see opportunities. We’re committed to delivering the right strategy, diversifying products and services, strengthening our culture and staff to drive continued growth and take advantage of changes in the marketplace.
What these times have shown us is that our strategies functioning well. We are more confident than ever that we chose the right strategies and have the right people to meet the challenges ahead. As we pursue responsible, sustainable growth, we strive continue to earn the right to bring our clients and shareholders with us on this journey – leading through these difficult times into the favorable future.
We are confident that our strategy is sound. By executing our strategy well and making meaningful progress toward our focus priorities, PRASAC will be in a good position to perform within the ranges of our medium-term performance objectives and create longer-term stakeholder value.
We would like to acknowledge and thank Mr. Ranjit Michael Samuel Fernando, as former of Chairman of the Board, for his truly high-class leadership and for leaving the company with the strength and depth to build for the future.
On behalf of PRASAC Management, I would like to thank the management team and staff for their efforts and commitment, the Board of Directors for their supports and advices, and the Royal Government of Cambodia, regulatory bodies, the National Bank of Cambodia, and local authorities, who always support us.
PRASAC’s top performance in 2017 is testimony to the dedicated effort of nearly 7,100 employees. We acknowledge their contribution and thank them for their commitment to our success.
President and CEO