New Year’s Resolutions
New Year’s Resolutions
It’s the time of the year when many people will start penning down their resolutions for the New Year.
Ranging from health to wealth, we will have a variety of resolutions and wish list. Like many, I myself have listed a number of resolutions from investments to personal goals which I am working to achieve in 2025.
In a similar fashion and as a banker for the past 30 years, I have a few resolutions and a wish list for the banking industry for the coming year; with all good intent to see further improvement and strengthening of the resiliency of the industry.
Banking Industry
The banking industry globally has evolved over the years. The past decade itself has seen a heighten awareness and call to-action on issues such as environmental, social and governance and anti-money laundering and compliance. We have experienced both the ups-and-downs in the industry and also seen a number of financial crisis over the past 30 years.
Nearer to home; the Cambodian banking sector has also seen similar evolvement with the rise of digital initiatives and payments and an increased alertness on fraud detection and customer protection. Almost all banks will have aspirations to have their own mobile banking app and credit card(s). These investments cost money and are often expensive and would require certain economies of scale for them to be profitable. The newer entrants will face a more uphill challenge as the cost of acquisition per new customer continues to rise in a highly competitive and fragmented market.
Wish List for the New Year
Exercise Responsibly (Financial Health & Resiliency)
Similar to maintaining good health (a very popular New Year resolution for many) where diet (what and when we eat) and exercise are important, a similar level of discipline and management of financial parameters are needed to ensure a financial institution remains “healthy” which plays a vital role in ensuring a resilient banking sector.
A common health measurement is the Body Mass Index (BMI) to see if an individual is overweight. The BMI measurement of banks ought to be the strength of their Balance Sheet i.e. its assets, loans and deposits alongside its capital and liquidity structure.
The equivalent ‘BMI index’ for financial institutions would comprise parameters and measurements for asset quality (NPL ratio), liquidity (Loans-to-Deposits ratio (LDR)) and solvency (Capital Adequacy Ratio). To date, there are policies to govern and ensure minimum solvency ratio but consideration ought to be placed on other important parameters such as liquidity (maximum LDR as we see in some neighbouring markets) to ensure the sector has adequate liquidity to withstand any unforeseen circumstances.
Omnia paratus (Prepared and ready for all things)
Lend Responsibly (Financial Access & Inclusion)
The banking industry for the past two years has been struggling with lower and slower loan growth. We need to see more loan growth (to the right sectors), without which it will be difficult to experience strong growth in the economy. There needs concerted efforts from all stakeholders to explore all options to increase loan growth and this has to be channeled to the right sectors of the economy.
The local economy’s growth in the past has been fueled mainly by private debt (loans) supported by the business-friendly and pragmatic policies set by the Government.
The ‘growth supported by private debt’ is a similar phenomenon for a number of emerging economies and we have seen the urgency of some neighbouring countries promoting loan growth over the past months. Considerations ought to be placed; to set loan growth targets to support selected “key and productive sectors”.
Never lose money – Warren Buffett
Act Responsibly (Financial Literacy & Conduct)
Money is a powerful force.
Hence, how we use money is important. The banking industry is one of the primary custodians of money.
Banking industry needs to ensure we use this ‘force’ to promote ‘good’ such as improving Financial Literacy (especially with the younger generation and in schools) and Financial Inclusion. ‘Value of money’, ‘importance of savings’ and ‘power of compounded interest’ are a few important lessons that ought to be inculcated and taught to our younger (and even current) generation.
Proper conduct is another key aspect of ‘Acting Responsibly’. Banking and Conduct are very much joined at the hip. Banking business is built around trust and integrity and it is unfortunate to read how these two virtues are at times breached by recalcitrant individuals who lack integrity and act with self-interest.
