Additional $20 Million Investment in Local Subsidiary
Meeting Small Loan Financial Institution Requirements with Capital Exceeding $30 Million
Plan to Request Promotion Next Year
Goal to Convert to Commercial Bank Within 10 Years
[Asia Economy Reporter Kangwook Cho] NH Nonghyup Bank has decided to inject an additional capital of 20 million USD (approximately 24 billion KRW) into its Cambodian local subsidiary, Nonghyup Finance Cambodia. Furthermore, within this year, it plans to increase the capital of Nonghyup Finance Cambodia to over 30 million USD and request an upgrade next year to a Microfinance Deposit-taking Institution (MDI) authorized by local authorities to accept deposits. In particular, the bank has set a goal to convert it into a commercial bank within 10 years and actively expand its financial business in Cambodia as a retail hub in Southeast Asia.
According to the financial sector on the 8th, Nonghyup Bank recently held a board meeting and approved a capital injection plan of 20 million USD for Nonghyup Finance Cambodia. Nonghyup Finance Cambodia is the first overseas subsidiary established through mergers and acquisitions (M&A) by Nonghyup Bank. In August 2018, Nonghyup Bank acquired the local Cambodian microfinance institution 'Samic (SAMIC)' and established Nonghyup Cambodia Finance in September of the same year. The initial capital of the local subsidiary right after acquisition was 5 million USD. Since then, retained earnings have been accumulated, increasing the current capital to the high 8 million USD range, and with this additional injection, the capital will reach the high 28 million USD range. If retained earnings are accumulated without dividends this year, the capital of Nonghyup Finance Cambodia will easily exceed 30 million USD. This will fulfill the minimum capital requirement for upgrading from a general microfinance institution (MFI), which currently only provides loans, to a higher-level financial institution, MDI. Nonghyup Bank plans to request the MDI upgrade from local regulatory authorities after internal decision-making in the first half of next year.
An official from Nonghyup Bank said, "Through this capital increase, we will meet the minimum requirements for the upgrade and are considering applying for MDI conversion next year," adding, "It will take at least 1 to 2 years to complete the upgrade after local authorities' review."
Kim Yong-gi, Head of Global Business Division at NongHyup Bank (7th from the right in the photo), and Seo Jun-yong, Head of NongHyup Finance Cambodia Corporation (8th from the right), are seen taking a commemorative photo with local employees immediately after the "2020 1st NongHyup Finance Cambodia Board Meeting" held on January 14.
Although Nonghyup Finance Cambodia has been operating for less than two years, it has achieved remarkable performance. After its official launch in September 2018, its net profit at the end of that year was 164,000 USD (approximately 200 million KRW). Although this was less than half compared to 439,000 USD (approximately 525 million KRW) at the end of the previous year, it still recorded a profit considering the initial selling and administrative expenses incurred during acquisition. The net profit of Nonghyup Finance surged to 1,222,000 USD (approximately 1.463 billion KRW) by the end of last year, just one year later. This is an increase of more than seven times in one year. Typically, overseas subsidiaries of financial companies incur initial business costs and operate at a loss for several years, but Nonghyup Finance Cambodia has surpassed profitability and entered a stable phase. It is analyzed that Nonghyup Bank’s unique agriculture-specialized business model worked well in Cambodia, an agricultural country. The strategy to discover locally optimized agricultural finance models such as specialized loans for farmers, agricultural machinery installment financing, and agricultural credit guarantee services proved effective.
Nonghyup Bank has set plans to continuously develop Nonghyup Finance Cambodia as a core ASEAN profit center in the future. In particular, it aims to convert it into a commercial bank within 10 years. Currently, Nonghyup Finance Cambodia operates 21 branches in 11 out of Cambodia’s 25 provinces. Before acquisition, it had 19 branches in 9 provinces, so 2 branches have been added. Additionally, two more branches are planned to open within the fourth quarter of this year. The number of employees increased from 240 to 266. After acquisition, a credit management department was established to improve asset soundness, reducing the non-performing loan (NPL) ratio from the 3% range before acquisition to 1.08% at the end of last year. Recently, internal control functions have been continuously strengthened in line with domestic and international environmental changes such as risk management, anti-money laundering (AML), and compliance monitoring.
Despite the COVID-19 pandemic, Nonghyup Bank’s expansion of investment and overseas market penetration appears to be driven by the strong will of NH Nonghyup Bank President Byunghwan Son, who took office in March. President Son, who previously served as head of the global business division, emphasized qualitative growth of global business and expressed his intention to accelerate overseas market expansion in his inauguration message to employees.
An official from Nonghyup Bank explained, "President Son emphasizes not only external expansion and profitability improvement but also integrating the identity of a Korean representative cooperative into the business to provide financial services that genuinely help the local community," adding, "Nonghyup Finance Cambodia’s collaboration with non-governmental organizations (NGOs) to improve rural water supply and drinking water projects locally is part of these efforts."
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