Interview: Pierre Imhof

Does the local banking sector have opportunities to finance large-scale projects?

PIERRE IMHOF: Large infrastructure projects, especially oil- and gas-related projects like building a refinery, require a tremendous amount of financing, much more than any individual bank can provide. That is true all around the world, not only in Brunei Darussalam. Special-purpose vehicles, like consortia of banks, must be created to finance those types of projects, but local banks certainly have a role to play in such consortia. Within a particular consortium of banks nowadays, one bank at least is specialised in project financing, and that is where Brunei Darussalam’s banks lack experience. Because of the size of the country, Brunei Darussalam’s banks remain relatively small and they may not have the full expertise required to take the lead on a project alone.

That said, while relatively small, Brunei Darussalam is a wealthy country. The local banking sector has an excess of liquidity and players are eager to use this money to support the development of the domestic economy. If banks do not lend much it is because of a lack of opportunities. The decline in oil prices reduced the number of government projects initiated. Legitimately, the government had to define priorities and respect the budget it agreed on.

In the oil and gas sector Brunei Darussalam has effectively and efficiently promoted domestic content through the Local Business Development Framework. As a local bank, that has helped us a lot. The Department of Energy and Industry has done a lot to allow local banks to participate in the financing of a number of local contracts. We have seen many changes. Foreign contractors are legally incentivised to engage with local banks for their projects. It was a very good move for us. We hope to see more of this in the industrial sector now. The country needs to jump-start economic diversification, and local banks are looking at financing diversification projects. It is not only about large-scale projects either, and smaller projects are equally interesting for banks.

In terms of the credit market, how concerned are you over the level of consumer indebtedness?

IMHOF: In Brunei Darussalam there is definitely a culture of spending more than a culture of saving. This has to change, and banks as well as the regulator are making great efforts towards achieving that goal. We need to promote a culture of saving.

By looking at the structure of consumers’ indebtedness, one can quickly assess that people are often indebted with personal loans, credit cards, car loans and mortgages. However, in Brunei Darussalam’s current environment the cost of living is relatively low, and the government covers a lot of expenses through subsidies, such as for education and medical expenses. Theoretically, purchasing power is quite high and the need for spending is low.

People with a low income are still able to live reasonably well, though they face a much higher level of indebtedness than many other countries would accept. So measures taken by the regulator, such as tightening credit regulations, are needed to control the level of indebtedness, but they should target the right groups, such as low-income civil servants.

What are your expectations for conventional banking in terms of market share?

IMHOF: Foreign banks handled most of the conventional banking market in Brunei Darussalam 20 years ago. Today, in terms of market share, the trend has changed and local conventional banks have taken over foreign entities. Islamic banking is getting stronger and stronger, as it is heavily supported and promoted by the government, and conventional players face increased competition from this segment. That said, the authorities support the principle of a dual system of Islamic and conventional banking.