Interview: Pierre Imhof
Given the restrictions on personal lending and the banking sector’s high level of liquidity, what areas would contribute to the growth of Bruneian banks?
PIERRE IMHOF: We expect banks to remain structurally very liquid. The authorities have made great efforts to encourage business enterprises to approach domestic banks to get financing locally. This would certainly help us to use our liquidity within Brunei Darussalam. Of late, local banks have been more active in financing small and medium-sized enterprises (SMEs), buoyed by the fact that many recent initiatives have been aimed at developing local firms. The message being communicated to local and foreign investors is that domestic banks are very well equipped to support them financially.
Growth in corporate banking among domestic banks is aimed not only at the oil and gas sector, which remains a significant part of the market, but also at the financing of infrastructure projects, which is another area in which the authorities are keen to develop local participation. Moving forward, this will have a positive effect on the banking sector, and domestic banks are well prepared to provide the necessary products and services. Bruneian banks are now much more specialised and are able to undertake more sophisticated financing structures for corporates.
How is the banking system working to lower risk and produce better lending schemes for local SMEs?
IMHOF: Better risk assessment on the ability to repay credit facilities plays an important role. Accurately assessing risk and ensuring that the borrowers have the capacity to repay are crucial aspects when banks support SMEs, which are often weak on physical and financial resources and highly dependent on the length of their initial contracts and whether or not they will be able to secure new contracts for business sustainability. This creates a degree of misalignment between the SMEs’ expectations and what banks can give. We are addressing these areas of concern in many different ways. For example, SMEs that are limited liability companies are increasingly being made to submit audited financial statements on a yearly basis. This enables the bank to better assess the borrower financially and make a well-informed credit decision. We are organising seminars, forums and networking sessions with SMEs, with the objectives of improving communication and helping them with their management skills and governance. Furthermore, we are making concerted efforts to instil the idea that although SMEs are small, they must develop and grow their business not only by using banks financing, but also by re-injecting their own resources and part of their profits.
In the oil and gas sector, we are seeing an increased degree of support for SMEs. For instance, within the marine services industry, longer-term contracts are being awarded that enable SMEs to obtain bank financing to purchase the necessary equipment and to depreciate it over a longer period of time.
What scope do you see for regulatory changes that would benefit the domestic banking sector?
IMHOF: Though it is a young governing body, the financial regulator Autoriti Monetari Brunei Darussalam has done well to show that it is in a strong position to regulate and control the Bruneian banking system. As with every industry, there are areas where market participants could benefit from further regulatory changes. One of the areas is to selectively adapt regulations to fit the local market as opposed to the adoption of regulations exemplified in neighbouring nations. Certain recent regulations, such as the policy on interest rates, have adversely affected domestic banks, by preventing them from applying a level of pricing based on risk. In other words, whatever the quality of the risk, we are capped and cannot adjust the pricing according to the risk taken. Also, with the creation of the credit bureau, there should be more room for the relaxation of lending rules in retail banking. Overall, I believe a return to a more market-driven set of rules for interest rates and fees for banking services would be largely beneficial.
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