Commercial banks and microfinance institutions have applauded the government’s initiative to disburse special low-interest loans to specialised banks in a bid to shore up the embattled economy.
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The initiative is to curb the fiscal impact of COVID-19 and to enable the banks to pass on cheap lending to their customers.
Prime Minister Hun Sen announced earlier this month that the government is considering a disbursement of between $500-$600 million from the reserve budget.
“We have a budget reserved from savings and the government has used the reserve budget to help the SME [small and medium enterprise] sector and to intervene in the rice sector. Now we will use it to help the banking sector,” Mr Hun Sen said.
Cambodia Microfinance Association’s (CMA) Chairman Kea Borann told Capital Cambodia that the CMA welcomes government initiatives to help the Cambodian people, as well as to support the national economy affected by the COVID-19 pandemic.
He said the association, along with its members of more than 100 institutions, will join the Cambodian government at this difficult time and is ready to further cooperate with the above initiatives if necessary.
“As of April 1, 2020, the microfinance industry has remained relatively stable. Loan requests as well as deposits are working well. However, we have noticed that recently there have been some withdrawals from clients who have small deposits, but customers with large deposits are relatively common, so MFIs [microfinance institutions] are unlikely to have a shortage of reserves,” Kea added.
However, he said the problems and the impact of COVID-19 on customers varies, so we cannot use the same solution for every client. Each member institution has its own procedures and principles for dealing with its clients according to their size, impact and actual situation. The client must present proof of current status and financial status as well as clear plans to the responsible officer of the institution.
“The government’s fund is focused on specialised banks. It is still unclear whether the government will drop the cash to MFIs. If yes, the MFI will have to convene an emergency meeting with its members to determine the appropriate interest rate,” he added.
Through a recent meeting with all members, customer repayment is still in progress. Credit portfolio risk ratio (PAR 30+) remains unchanged. The association, along with its members, has been closely monitoring the progress of the microfinance sector with its stakeholders, as well as taking steps to prevent and address any potential problems.
Say Sony, senior vice-president and chief marketing management of PRASAC MFI, told Capital Cambodia that he was not sure the fund is designed for only specialised banks or for microfinance institutions. However, he said that if that fund also included MFIs, it would be great.
“We welcome the government’s initiative not only to support banks but also clients. To support the government initiative, we will apply for the loan and diversify our existing source of funds to support our clients’ businesses,” Say said.
“This government action will enable more liquidity in the financial market on top of existing measures. However, PRASAC is well prepared and we don’t have any problems with liquidity. Our current business has been running well for the past three months.
“Our loan portfolio has grown about 8 per cent from $2.501 billion in December to $2.725 billion in March 31. While our deposits grew about 2.25 per cent from $1.778 billion to $1.828 billion.
“Our non-performance loans (NPLs) have slightly increased from 0.36 percent to 0.48 percent because of the COVID19 situation. However, our deposit growth is about 2.25percent from $1.778billion to $1.828billion.”
Say added that as of now the industry still doesn’t know the loan conditions yet but it would be more attractive to support the banking sector to continue its lending business and it’ll enable clients to access the financial services they need.
The four most affected sectors at the moment are tourism, garments, construction and transport. Say said he hoped the situation will be back to normal soon
Oeur Sothearoath, CEO of Credit Bureau Cambodia, said that amid the Coronavirus pandemic, it was an appreciated move by the government to allocate millions to banks at low interest rates to make credit affordable and available.
“Everyone is aware of the impact of COVID-19, which not only hit the local market but the global market as a whole,” Oeur said. He added that this will ease banks’ lending decisions at a time when they may be re-assessing their lending risk. It complements the National Bank of Cambodia’s recently adopted measures to improve liquidity in the banking system including lowering required reserves that banks and financial institutions must maintain at the central bank, among others, he added.
Speaking to Capital Cambodia on condition of anonymity, a banking industry insider said the relief measures from the government are very thorough and efficient.
He added that it is very crucial at this moment to protect the integrity of the banking system, which should be functioning as the last resort for the economy to maintain its sustainability throughout this unusual time, if the economic condition ever gets worse.
“In that sense, the government’s consideration on special funding to financial institutions (FIs) would be able to relieve businesses under financial stress and, at the same time, ease the pressure on FIs to sustain and support the national economy,” he added. “I think it is too early to comment because there aren’t any details on the implementation of the plan yet. Please understand the situation we are facing. Many rumours are making people confused and insecure,” the banking industry insider added.
Speaking exclusively to Capital Cambodia, Chea Serey, director-general of the National Bank of Cambodia, said that as things stand currently, the government has two vehicles to disburse these low cost funds to enterprises. One is the Agricultural and Rural Development Specialised Bank and the other is the newly licensed SME bank. Both are 100 percent owned by the government. “Whether private banks will be able to participate or not depends on government policy,” she said.
Chea added that at present commercial banks and MFIs have strong capital and liquidity positions since the NBC imposed strict prudent rules during the good times that have helped these institutions’ resilience to weather the current situation.
But the economic situation globally is not looking good, not just in Cambodia but globally, and there is no certainty when it will get better.