After Tough Year, Banks Start to See New Growth By Simon Marks

Lending grew nationwide by just five percent in 2009 compared to heights of more than 50 percent the previous year, the National Bank of Cambodia said in an annual report released last week.

“The fear of growing nonperforming loans, to some extent, restricted banks from underwriting new loans,” the central bank’s supervision department said in the report.

Indeed, the report showed that nonperforming loans increased to almost 5 percent of all outstanding loans in 2009, up from 3.68 percent in 2008.

The highest proportion of lending went to the retail sector, which accounted for 18 percent of all loans disbursed in 2009, followed by wholesale trade at 13 percent, and the hotel and restaurant industry at 12 percent. The real estate and construction sectors together accounted for 15 percent.

“These sectors are considered high risk sectors and funding of these sectors is projected to have some repayment difficulty,” the report said.

The total value of loans disbursed last year was $298.6 million, according to the report.

According to Steven Higgins, CEO of ANZ Royal Bank, banks were hesitant to lend to the real estate sector in 2009.

“And on the demand side I don’t think there were too many people looking for a loan,” said Steven Higgins, CEO of ANZ Royal Bank, adding that much of the investment in real estate was derived from equity rather than borrowing.

He said it remained to be seen how outstanding loans in the real estate sector perform.

Last year’s recession also meant that profits in the banking sector were reduced, with return on equity declining from its 2007 peak of 16.58 percent to just 5.63 percent in 2009, according to the National Bank report.

The report attributed the decline in profits to “the slowdown of credit expansion, the slight growth of nonperforming loans, the additional cost of accumulating customer deposits and the rapid expansion in branch networks.”

NBC Director-General Tal Nay Im said profits in the banking sector this year would depend on the speed at which the economy rebounds.

“We obviously hope that the economy will recover in 2010,” she said.

Coinciding with the fall in profits, bank deposits grew by 32 percent in 2009 and the number of borrowers increased by 14 percent, a reflection of the “strengthening of public confidence in the banking system, even during stressful periods,” the report said.

Bankers say the spike in deposits is curbing their profit-making potential as high interest rates on deposits hurt their margins. Mr Higgins said that high levels of liquidity in the sector have made it imperative for banks to reduce interest rates on deposits.

In Channy, CEO of Acleda Bank, said that his bank’s strategy would not turn away from increasing deposits.

“We are confident that new growth will come back this year,” Mr Channy said. “We have seen good progress in all sectors, including agriculture, garments and tourism.”

In 2009, the total number of loans disbursed by microfinance institutions and rural credit operators increased by 10 percent, compared to 81 percent in 2008. The nonperforming loan ratio among micro-loans increased from 0.4 percent in 2008 to 2.80 percent in 2009, the report said.

But Hout Ieng Tong, CEO of the microfinance institution Hattha Kaksekar, said he expected loan growth in the microfinance sector to bounce back and grow by around 30 percent this year.

“The economy in the country is doing better,” he said. “People are starting to realize that they need money for their business.”

Hattha Kaksekar’s loan portfolio has grown by 10 percent in the first six months this year, Mr Tong said.

Canadia Bank remained Cambodia’s most profitable bank in 2009, with net profits of $24.4 million, followed by Cambodian Public Bank at $13.3 million and Acleda at $10.3 million.


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