In a bid to reinvigorate the economy, the National Bank of Cambodia on Monday lowered the foreign currency reserve rate for banks to 12 percent and removed a restriction on real estate lending, an NBC official said.
Many bankers have sought the lowering of the rate since the NBC raised it in May 2008 from 8 percent to 16 percent in order to cool down lending and reverse the trend of increasing inflation rates. The NBC also limited the amount of real estate loans a bank can make to just 15 percent of its total credit portfolio.
The restrictions came as the inflation rate, measured over 12 months, hit a record high of nearly 26 percent in May 2008, according to the World Bank. But bankers said at the time that the restrictions would stymie economic growth, a chorus that has only grown louder of late as the inflation rate has come down by about half and growth has slowed.
“[Bankers] just requested [the NBC] to relax the restrictions and so we decided it was time to relax it for them and we think 4 percent is reasonable,” NBC Director-General Tal Nai Im said by telephone Monday. “More loans to the economy will develop the economy.”
She said the government would consider further loosening of restrictions over the next year as the situation warrants.
Several international finance institutions predicted Cambodia’s GDP growth in 2008 wouldn’t rise above 5 percent after years of double-digit growth. On Sunday, Finance Ministry Secretary-General Hang Chuon Naron estimated that GDP growth was about 7 percent, though an official number is not yet available.
Acleda Bank Vice President John Brinsden said by telephone that the new 12 percent reserve rate will allow Acleda to issue loans for a month or less before it uses up the 4 percent released by the NBC.
“Certainly in our case the results will come through very quickly,” he said. Most major banks have hit their limit on real estate lending, he said, adding that many banks have accumulated piles of loan applications they could not process because of the 16 percent reserve rate requirement.
Kang Chandararot, executive director of the Cambodia Institute of Development Study, said by telephone that the government needs to do more to help the economy.
“The market will need not just the lower rate for the banks, but it also must come with other policies,” he said, citing tax relief and more infrastructure spending as options.
Hang Chuon Naron said more policies to help the economy are coming.
“We are considering them,” he said by telephone Monday, declining to say when these unspecified policies will be announced.
Stephen Higgins, CEO for ANZ Royal Bank, said by telephone Monday that lifting the restrictions won’t make that much difference to the economy.
“I am not sure people understand the depth of the global financial crisis. It’s not about Cambodia. You are seeing a rapid slowdown in Korea, a rapid slowdown in Japan and a rapid slowdown in the US.”
“This will have a bigger impact than 4 percent of the reserve rate,” he said.