Interview: Pierre Imhof
How will the creation of a credit bureau affect risk management practices and the overall non-performing loan (NPL) ratio?
PIERRE IMHOF: For many years, banks in Brunei Darussalam have been operating without a credit bureau. This has prompted major banks to develop credit management systems based on their own data and experience, which, over the years, have become very efficient. Strong risk monitoring and risk assessment have allowed Baiduri to reduce our NPLs to extremely low levels. The recent creation of a credit bureau will definitely have a positive impact; it will help to give the banking system a clearer picture of the total indebtedness of their clients.
To what extent has the demand for mortgages been affected by the reduction of personal loans?
IMHOF: Normally personal loans should not be correlated with mortgage loans because they have different purposes. In the past, however, Bruneians used personal loans to borrow large amounts over long terms to invest in real estate or for renovation works. Although these personal loans were generally of good quality and had low default rates, these practices were not healthy, and the issuance of a notice regulating personal loans seven years ago was a very positive move. At the present time, people are increasingly borrowing through the appropriate financial products. If they want to buy cars or home appliances, they will use the proper corresponding specialised loans, and if they wish to invest their money in real estate, they will take up a mortgage loan. Thanks to this, we have seen a tremendous rise in housing loans over the past five years.
What needs to be done in terms of regulations regarding small and medium-size enterprise (SME) lending and funding start-ups?
IMHOF: First of all, 99% of our corporate loans are granted to SMEs. In Brunei Darussalam, if you want to be in the corporate banking business, you have to lend to SMEs. The challenge that we face as a bank is that we have large surpluses of liquidity and not enough potential borrowers offering an acceptable risk profile. Limited liability companies in Brunei Darussalam are supposed to produce audited financial statements, but most of the time this does not happen. So, we make our lending decisions based on the soundness of their securities, their reputation or their ability to perform, rather than assessing their financial strengths. We should not forget that the money banks lend belongs to depositors, which makes risk assessment critical. Sometimes SMEs are under the impression that banks do not want to lend to them. This is not true; rather, we will only lend to viable SMEs. Another factor inhibiting SME financing is the fact that Brunei Darussalam has no capital market and no stock exchange, thus preventing SMEs to access other sources of financing. For this reason, there is a real need to create more tools for SMEs to be able to access funding without necessarily going to the banking system, which may have stricter requirements. Funding start-ups is often easier through equity and investment funds than through banks. The Ministry of Industry and Primary Resources, the Ministry of Finance and the Brunei Economic Development Board have created a number of schemes the aid local SMEs and attract foreign investors.
How will the discovery of the new offshore blocks drive demand for banking services?
IMHOF: If oil and gas production increases in the coming years, this means higher revenues given the present levels of oil and gas prices. This may generate more liquidity inside the country. In turn, this situation may encourage banks, including local ones, to develop their expertise in asset management and to expand their offer of investment products for institutional or corporate entities as well as for individual investors. I also hope that, thanks to the initiatives taken by the Ministry of Energy that are encouraging local content, major oil and gas operators will present a larger range of opportunities to local banks that are dealing with them.
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