Business As USUAL: There is some positive news amidst the current COVID-19 situation: your finances are in steady hands

Sok Chan

Some 4,300 deaths. Just under 120,000 diagnosed cases. The COVID-19 virus continues to wreak havoc around the globe. And closer to home, in Cambodia, the outbreak, now upgraded to a pandemic, has made its presence felt, not just in terms of human cost, but in its dramatic effect on pretty much every one of the country’s sectors.

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Sharp declines have been recorded in the tourism industry, on both the domestic and international fronts. There have been supply disruptions from China, who is responsible for providing 60 percent of raw materials to keep production lines running in the textile industry, one of the Kingdom’s lifeblood sectors. And no-one can confidently predict when the virus will finally run its course.

But the Cambodian banking and finance sector remains steadfast. In fact, the micro-finance institution Prasac has recorded loans of $2,663 million in January 2020. This is up by $162 million – this represents a 6.5 percent increase – on the same time last year.

“Our loan business is running well and these figures suggest that we aren’t suffering any negative financial impacts,” said Say Sony, vice-president of the financial institution, which has 180 branches around the country.

Kea Borann , Chairman of CMA. KT

The buoyant figures have lead the company to say that it “won’t hesitate to give out loans if they [the client] meets all of the criteria”.

“We will take into account if a client’s business is running well because that is an indicator that they can keep up with their repayments. We will continue to work with rural communities and micro-enterprises,” Say explained.

The micro-finance company’s confidence seems well-founded in light of recent comments from Kea Borann, chairman of the Cambodia Microfinance Association (CMA). He reported a 30 percent increase in loan portfolios in 2019, with over two million Cambodians lending $7.5 billion in 2019 when compared to the previous year.

“If we look at the MFI sector’s achievements, in general, it was good last year. The credit portfolio continued with a better performance. Not only were loans up by a third, but deposits are also steadily growing,”  he declared at the association’s AGM held in held in Phnom Penh earlier this year.

However, Kea did forecast that the overall economy slowdown caused by COVID-19 will put the brakes on some lending, but it is a responsible approach.

“This year, there will be fewer loans due to the impact of Covid-19 and the slowdown of the economy in the Kingdom. After all, if the customers fail to make their repayments, the financial institutions will also fail,” he said.

In the bigger financial picture, Rath Sovannorak, director-general of banking supervision has met with many of the country’s MFIs, MDIs and banks to find a workable solution to the fiscal issues caused by the virus in the banking and financial sectors.

The resulting three measures include ensuring business operations are supported if they are facing financial difficulties, by delaying payment of both the capital and interest on loans. And  this approach has been fully supported by both The Association of Banks in Cambodia and the Cambodian Microfinance Association. In addition, they have requested that banks and financial institutions continue to provide loans to small and medium enterprises (SMEs) affected by the virus.

Sony Say, vice-president of Prasac. Supplied

“Banks and financial institutions should actively continue providing loans to these priority sectors, as well as tourism-related businesses and the construction, garment and footwear sectors,” the joint statement read. “Banks and financial institutions should exercise flexibility in dealing with loan-repayment issues for customers affected by COVID-19. They should also continue to take necessary action to protect their employees to ensure clients can continue to depend on the reliability and sustainability of banking services.”

In a worst-case scenario for Cambodia, the Asian Development Bank has estimated that the Kingdom’s decline in tourism revenues could run to $856.5 million, which translates to about 3.5 percent of the county’s GDP. However, this projection does not yet single out the cost to the banking and financial sector.

In its recent analysis, the ADB also points out that the full magnitude of economic losses will depend on how the outbreak continues to evolve. The range of scenarios explored in the analysis suggests a global impact in the range of $77 billion to $347 billion, or 0.1percent to 0.4percent of global gross domestic product (GDP).

“There are many uncertainties about COVID-19, including its economic impact,” said ADB Chief Economist Yasuyuki Sawada. “This requires the use of multiple scenarios to provide a clearer picture of potential losses. We hope this analysis can support governments as they prepare clear and decisive responses to mitigate the human and economic impacts of this outbreak.”

However, Dr. In Channy, president and group managing director of Acleda Bank, says that only are they ready to face the myriad challenges but are simultaneously working on future plans.

“Our institution is still growing despite the concern around the virus. People are still doing business, and they need the banking service,” he said. “But our new infrastructure continues to go towards digitalisation.”

In other words, it’s business as usual.

 

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