CIMB Thai Bank (CIMBT) will focus mainly on serving local companies and individuals at its Vientiane branch as Laos seeks more funding to support its economic growth.
Malaysia-based CIMB Group assigned CIMBT to set up a branch in the Lao capital with registered capital of US$12.5 million (Bt407 million).
The branch is scheduled to open in June or July, with the Lao central bank expected to grant an operating licence this month.
CIMBT chief financial officer Narongchai Wongtanavimok said last week that under the CIMB Group platform, the branch would concentrate more on local clients, especially corporate and SME (small and medium-sized enterprise) customers in terms of lending and deposits.
The bank has a different strategy from its Thai peers that have had a presence in Laos for several years, as the latter prefer serving Thai companies doing business in the neighbouring country, he said.
Laos has 33 banks, of which five are Thai: Bangkok Bank, Krungthai Bank, Siam Commercial Bank, Bank of Ayudhya (Krungsri) and TMB Bank.
As a newcomer, the competition for CIMBT is likely to be intense, but the bank believes the key to success is serving local customers, he said.
Laos is seeking foreign capital to drive economic growth ahead of the Asean Economic Community’s coming into effect next year.
Since 2006, gross domestic product has grown by more than 7 per cent each year, hitting 8.2 per cent last year – a trend that offers greater opportunities for running a banking business in Laos, he added.
CIMBT projects lending of Bt300 million in its first year of operation in Laos, with corporates and SMEs in manufacturing, consumer products and trading being the main focus of the Vientiane branch, he added.
The bank hopes to break even in the second year, and to make a profit the following year.
CIMB Group has a clear strategy for doing business outside its home country by servicing local businesses and individuals, as it has done in Thailand, where CIMBT services Thai as well as Malaysian clients, said the chief financial officer.
“Our main competitors in Laos will be Chinese and South Korean banks, which have captured many customers,” he said.
Krungsri recently expanded its consumer-finance business, including auto loans, in Laos via a joint venture. CIMBT therefore acknowledges the bank as a rival in the hire-purchase segment, which it also aims to tap into, said Narongchai.
The financial behaviour of Laotians has changed from using cash for making large purchases to using bank credit to do so.
Moreover, he said that based on the bank’s latest visit to the country, there were now far more vehicles on Vientiane’s roads, which presented an opportunity for CIMBT’s hire-purchase operation to penetrate the motorcycle and passenger-car segments, as they were not areas targeted by the other Thai banks present in the country – apart from Krungsri.
The main challenge in doing hire-purchase business in Laos, however, is that its people generally favour buying Chinese and South Korean vehicles, with dealers representing those countries’ auto-makers providing loans thorough captive leasing companies, he explained.
Meanwhile, the loan interest rate for hire purchase in Laos is set at 40 per cent per year, with down payments starting from 30 per cent and the hire-purchase period being three years.
Interest rates for corporate clients are set at 16-17 per cent per year, and 18-20 per cent for SMEs.
While these borrowing rates are high, deposit rates are also much higher than in Thailand, with savings deposits attracting 6-7 per cent per annum, and three-month fixed deposits starting from 14 per cent per year, said Narongchai.
The opening of the Vientiane branch will strengthen CIMB group’s presence in Asean, where it currently has operations in Malaysia, Indonesia, Thailand, Singapore, Cambodia, Brunei, Vietnam and Myanmar.