Financial InformationPresident & CEO's Report

President & CEO's Report

Mr. In Channy, President & CEO of ACLEDA Bank Plc.

"We owe our record results to our continued investment in staff training and diversification of the bank's business and operational infrastructure during the adverse economic conditions prevailing in the last years of the decade. This placed us in a favorable position to exploit the returning prosperity in 2011 to extend our reach to our customers in all corners of the country. In particular the growth of our highly successful mobile banking service, ACLEDA 'Unity', has enabled us to access the previously unbanked and to become the leading financial services provider amongst the paddy growers and farmers in the remote rural areas."

Performance in 2011

Competitive environment

Cambodia's financial market with its liberal regulatory environment continues to attract more banks. By the year end there were 35 commercial and specialized banks in the country which together with the growth of larger and better managed microfinance institutions, has turned up the competitive heat in both urban and rural areas. In spite of this amongst the commercial and specialized banks ACLEDA Bank managed to increase its market share in lending from 23.1% to 23.5% while our share of deposits increased from 21% to 22%. Whilst not all banks have published their results, our research indicates that we are the market leader in assets, loans, deposits and profitability, as well as in the number of offices and ATMs throughout the country – a remarkable achievement in the eleven years since we transformed from a microfinance NGO. Out of a total of 1,266,412 depositors in the banking sector, over 821,900 bank with ACLEDA which demonstrates our enormous spread particularly in retail banking.

Plant nursery farm

Operational Performance

ACLEDA Bank Plc's total assets grew to US$1,486.7 million, a 28.1% increase over 2010, and net interest income rose 31.3% to US$116.5 million whilst after-tax profits increased 86.6% to US$49.4 million. This record result was achieved through focusing on four key areas:

• Tight management of our portfolio quality reducing the NPL ratio to 0.17% in 2011 from 0.43% in 2010.
• More efficient management of the balance sheet and the maintenance of ratios at the optimal level particularly Loans to Deposits.
• Careful cost control reducing the 'Operating Expenses to Gross Operating Revenues' ratio from 52.6% to 44.6%.
• Growth of the fee based income by 35.2% from US$19,477,887 to US$26,332,224.

In addition, I would like to highlight some key non-financial performance contributors:

• Deposits continue to fund the expanding loan portfolio supported by ACLEDA 'Unity', our mobile phone banking service which now has over 50,000 subscribers, as well as the expansion of our ATM coverage into more locations and connecting it to our Laos subsidiary allowing customers to withdraw through each other's network.
• Cash Management services performed particularly well with growth in domestic transfers and payroll accounts, and the extension of our budget management service for the National Treasury to another eleven provinces.
• Investment in the upgrading of our offices, especially in the rural areas, to provide more welcoming facilities to the public, increase capacity to accommodate our growing customer base and afford a more efficient working environment for our staff.
• The phenomenal success of the rural economy gave ACLEDA the opportunity to reap the rewards of its past commitment to the agricultural sector.

Micro business: vegetable gardening

Retail, Micro and Small Business

Micro Loans decreased by 12.6% compared to the previous year because of the increase of our customers' business and their need for larger loans to support their business growth, Small Loans grew by 33.82% and Personal Loans by 57%. Housing Loans slightly decreased due to still weak conditions in the property sector and the continued application of stricter property valuation guidelines. Housing Loans represent only 7.54% of total loans outstanding – down from 7.77% a year earlier.

Deposits grew by 25.9% to US$1,147.2 million, of which the retail sector is by far the largest with a significant amount coming from first time depositors such as employees paid through our Payroll Service and customers in rural areas where we have newly opened offices. It is comforting to note that the retail deposits cover the total loans outstanding of US$989.4 million.

An important factor in the growth of deposits was the continuing development and expansion of our automated delivery systems which at the end of 2011 comprised 134 ATMs and 640 POS terminals throughout the country with nearly 504,173 cards issued.

Medium and Corporate Business

Lending was sluggish in the first half but showed signs of revival in the last six months finishing the year up by 40.01% led by Revolving Credits, Overdrafts and Trade Finance.

Cash Management performance has increased strongly with the National Social Security Fund awarding ACLEDA the management of the Private Sector Social Security Fund and appointing the bank as custodian to receive employers and the government contributions in 23 provinces. In addition, several new accounts were acquired in 2011 the most significant of which were the extension of the ATM and Unity bill payments for Electricité du Cambodge and the water supply company to additional provinces. The National Treasury's receipt and payments facility, which originally covered only Banteay Meanchey and Kandal provinces, was awarded exclusively to ACLEDA in 11 new provinces. This has had a positive impact on our local currency cash flow and has enabled us to fund our Riel loan portfolio entirely from deposits. Demand for Payroll Services was particularly strong in 2011 with a number of large local and international companies and official organizations signing up which provided excellent opportunities for cross-selling of other products.

Trade Finance increased substantially contributing to a rise of 55.89% in fee and commission earnings from this division. As a result fee and commission earnings (excluding loan fees) climbed 39.38% and accounted for 18.17% of gross revenue for the year. If loan fees are included the figure increases to 34.62% of gross revenue for 2011.

Treasury and International

Foreign exchange earnings continue to grow and made a valuable contribution to our Net Fee and Commission Income. As our F/X business is to support our customers' businesses only – the bank does not trade speculatively or take positions – this is a low risk and stable source of income which has grown consistently over time, produced good margins, and built up long-standing relationships with the money changers and currency dealers.

The Bank's Balance Sheet has been further strengthened by robust inflows of customer deposits resulting in a healthy loan-to-deposit ratio and provides a solid platform to support our growth in selected market operations.

We continued to strengthen and deepen our Financial Institutions relationships and added some substantial new international correspondents to our network during the year. At the end of 2011 we had 446 correspondents covering 56 countries. In addition we have a dominant share in the market for local banks' and microfinance institutions' domestic accounts and provide funds transfer services for them throughout the country.

Rice mill enterprise

Strategic Priorities for 2012

We continue to build and broaden our network and bank infrastructure to reach the customers in all corners and to provide convenience and security for their savings.

• We will continue to upgrade our Information Technology System by fully migrating it to Oracle which will build a strong foundation and broaden the platform to connect all branches and offices online allowing our nationwide customers to enjoy greater access to the bank's services.
• Establish 18 new branches and offices to deepen our penetration of the market and offer neighborhood services and convenience to new locations.
• Install new ATMs with the latest technology offering an enhanced range of services such as cash deposits and extend the utility bill payment facility.
• Upgrade ACLEDA Unity to provide more mobile services ('The Bank In Your Pocket') and increase the number of platforms on which it will run to expand the potential customer base especially in the unbanked rural areas.
• Launch an internet banking service so that our corporate customers can initiate their transaction from their work places.
• Introduce a VISA Credit card as the payment service of choice for our customers.
• Launch bancassurance and explore opportunities for other insurance business.
• Take advantage of ACLEDA Securities Plc's premier role in the securities settlement business to tap into payment and settlement opportunities for the new stock exchange for fee based income from securities transactions.

Medium and Long Term Strategies

• To expand on ACLEDA's leading position in retail banking by delivering a full range of financial products and services to all sectors of the community by:
• Using experience gained in our core micro and small businesses to develop our 'service culture' and grow our product range as the market expands and demand arises;
• Emphasise investment in R&D to develop core banking and financial products/services of universal appeal to satisfy the needs of all customers.
• Continue to improve the distribution channel and bank infrastructure by upgrading the branch and office network and facilities, ATMs Machines, POS terminals, and electronic banking including the ACLEDA Unity and internet banking.
• Diversify and expand sources of income derived by cross-selling between group companies: ACLEDA Bank Lao Ltd., ACLEDA Securities Plc, and ACLEDA Training Center Ltd.
• To maintain our competitive advantage by continuing to invest in the upgrading and expansion of our IT systems to improve operational efficiency, enhance security and convenience for the customers and the bank and reduce risk through the automation of manual procedures.
• To investigate and develop opportunities for further regional expansion.
• To promote the ACLEDA Training Center Ltd as a separate sustainable business to allow it to develop its own role as an internationally respected educational establishment offering superior training and recognised qualifications both for external students as well as our own staff.

Under the motto of the 'Bank for the People', ACLEDA Bank seeks to embrace the whole of society and aims to treat all customers with the same service and courtesy irrespective of their status. The bank's continuing growth every year to become the leader in Cambodia that it is today gives credence to this philosophy and our management and staff are greatly encouraged by these results which will motivate us to strive even harder to meet the public's expectations.

It is therefore with the greatest pleasure that I record my most sincere gratitude to all our customers; my colleagues on the board of directors, the management and staff, and our professional advisors and, not least for the support of the Royal Government and the National Bank of Cambodia who have stood by the bank in a time of great change and challenge.