Financial InformationChairman's Report

Chairman's Report

Mr. Chea Sok, Chairman of the Board of Directors

"Anticipating the eventual recovery of the economy, the decision to boost investments in systems, human resources and product development during the financial crisis in 2009/2010 was amply rewarded with record results in 2011. Strong performances in all our business segments and a positive outlook for 2012 indicate that we are entering the New Year in great shape."

The Cambodian Economy in 2011

Medium scale garment factory

The year 2011 turned out well for most Asian economies with average GDP forecast to expand 7.25% annually. The growth rate for the Cambodian economy is expected to increase by about 7% in 2011 which nevertheless represents a favourable outcome when compared to the 2010 figure of 6% and was the result of strong exports of goods and services, a sharp increase in private investments and a solid macroeconomic position. The manufacturing sector performed particularly well with garments and footwear growing 20.2% compared to 10.4% in 2010 while a continuing recovery in the tourist sector, which rose 15% compared to the previous year, helped boost the economy. Despite the recent severe flooding, which affected the livelihoods of the rural population, the agriculture sector increased by 3.3% compared with 4% in 2010, largely due to the approximately 200% rise in milled rice exports.

FDI inflows are forecasted to increase by 15% to nearly US$900 million or 7.1% of GDP (up from 6.7% of GDP in 2010). Gross foreign exchange reserves are projected to grow by 4.8% to US$3.2 billion or 4.9 months of imports by the end of 2011.

Although the Cambodian economy is highly dollarized the nominal exchange rate for the Riel to the US$ has been very stable throughout the period.

Consumer price inflation rose 6.7% in September 2011 from a year earlier, with nearly half of the increase attributable to food prices alone. The inflation rate actually fell slightly from 7.1% in July and is estimated to reach 4.9% by the end of 2011.

Paddy rice farmer at harvest season

The overall banking sector's financial results showed robust growth across the board in terms of deposits, credit, operating profits and assets. Customer deposits rose by 19.4% from US$4.3 billion to US$5.1 billion at the end of 2011 while lending rose significantly by 33.6% over the last year from US$3.3 billion to US$4.4 billion as the economy picked up and both borrowers' and the banks' confidence returned. The aggregate level of banking assets amounted to US$7.9 billion increasing by 22.2% over 2010, and now stands at the equivalent of 61% of GDP in 2011. The Broad money supply (M2) has risen from 38.3% of GDP in 2010 to 45.4% of GDP in December 2011. The gross loan-to-deposit ratio of the commercial banking sector increased to 84.5%, from 75.1% in 2010. Other significant ratios were solvency 28.6%, liquidity 87% and non-performing loans 3.3% in 2011.

The Cambodian Securities (CSX) was officially launched on July 11, 2011, but is not expected to have its first listed company until the second quarter of 2012.

Economic Outlook for 2012

We expect the outlook for 2012 to be positive. The growth is projected to be 7% and inflation will be contained within 4.3% and M2 18%. Exports are expected to promote growth because of greater market access granted by the relaxing of the EU Rules of Origin. The exchange rate of US Dollar/Khmer Riel will be maintained at 4,050. The banking sector expects to perform better overall as most banks are reporting higher growth in deposits and loans and improvement to the overall portfolio quality.

Achievements in 2011

The Group's net profit after tax reached a historic high of US$49.6 million a growth of 94% compared to 2010 to which ACLEDA Bank Lao contributed for the first time. The foundation of our record results was the continuing recovery of the economies of both Cambodia and Laos which gave increasing optimism to our customers, and encouraged the bank to release more credit. The increase in our revenues was attributable to higher net interest and non-interest income as well as a reduction in the operating efficiency ratio which improved from 54.05% in 2010 to 47.62%. Net Interest Income increased by 33.6% resulting from the strong loan growth and improving net interest margin. Loans outstanding in all sectors exceeded our targets and recorded a growth of 36.6% over 2010. The non-interest income rose 38.5% as a result of robust growth in trade finance and cash management services and accounted for 18.8% of total income compared to 18% in 2010.

To maintain our capital base at the upper level of the regulatory prudency ratios and to support our planned growth the Board is proposing a final dividend for 2011 of US$0.3164 per share to be issued as scrip. This represents an increase of 110.9% over the previous year and will bring the share capital up to US$113,169,560 while the undistributed retained earnings will be transferred to general reserve raising it to US$75,849,837.

In addition to ACLEDA Bank Lao, which turned in its first profitable year since opening in 2008, our two 100% owned subsidiaries in Cambodia also had good news to report. ACLEDA Bank Plc. received licenses from the Securities and Exchange Commission of Cambodia (SECC) to act as a Securities Registrar, Payment Agent, Securities Transfer Agent and Cash Settlement Agent, thus giving the Group a major share in the fee earning securities transaction business. During the year we also received regulatory approval to spin off our ACLEDA-ASEAN Regional Microfinance Center into a separate registered educational institute. The new company, which has been renamed 'ACLEDA Training Center Ltd' has already gained worldwide recognition as a centre of excellence in microfinance training attracting students from every continent and contributing to Cambodia's 'soft export' earnings. Lastly, the bank has acquired 6% of the registered share capital of the Credit Bureau of Cambodia which is expected to be fully functional in 2012.

Looking Forward to 2012

Pharmaceutical enterprise

The decision over the past three years to invest heavily in IT and productivity initiatives, in spite of the inclement economic climate, has fully justified itself. In particular, the establishment of the "ACLEDA Unity" brand in mobile banking has placed us in a strong position in the retail financial services market.

Competition in the banking sector will remain very keen in 2012 with new entrants lining up for licenses while the existing players are starting to expand their domestic operations. However, ACLEDA Bank is well positioned to meet the challenges and the increasing international reputation of the bank is showing through in the notable growth of our overseas business which now accounts for a significant part of our total net profit. The development of the group's network in Laos, where we now have 17 Offices, and plans for expansion into additional markets and countries will strengthening the network, diversify revenue sources and build our intra-ASEAN credentials.

These results are a testament to the diligence and dedication of the management team and the entire staff and I would like to thank them for their hard work and effort in carrying the bank so capably though these turbulent times.

Finally, I would like also to express my appreciation to the National Bank of Cambodia, the Ministry of Economy and Finance, the general public and all our customers, shareholders and business partners for their continued trust, confidence in and loyalty for ACLEDA Bank. We are grateful to our new shareholder COFIBRED for hosting our Board Meeting in Paris in July and we welcome Mr. Yves JACQUOT to the Board and hope he will enjoy his time with us. My thanks also go to my fellow directors for their commitment and support during the year.