The government must lower the reserve rate for banks so that financial institutions can loan more money and fuel an economy in the grips of a financial slowdown, bankers and business leaders said Wednesday.
The National Bank of Cambodia, in an attempt to lower inflation and cool the lending market, began requiring in May that banks double their reserves from 8 to 16 percent of all foreign currency. The increase came the same month that the inflation rate, measured over 12 months, hit a record high of nearly 26 percent, according to the World Bank.
But since then inflation has lowered to about 13.5 percent from December 2007 to December 2008, according to the Ministry of Planning, and bankers say that with growth slowing and inflation under control the government must make it easier for banks to give loans and stimulate growth.
“Inflation is coming down particularly in food and energy costs and now the danger is the economy slowing down,” said John Brinsden, vice president of Acleda Bank. “At some stage [the government] might relax some of its policies on credit squeezing,” he said.
The reserve rate has significantly cut Acleda’s ability to issue loans, Brinsden said, adding that outstanding loans at Acleda grew just five percent in the last six months of 2008 after the NBC doubled the reserve rate. Prior to that, in the first six months of 2008, outstanding loans grew 50 percent to more than $450 million, he said.
“We just don’t have the funds we would like [available],” Brinsden said, adding that he would like to see the reserve rate as low as possible.
Tal Nai Im, director-general of the NBC, said the national bank has been considering a possible policy change as the economy slows.
“We think it’s time to lower [the reserve rate] some percentage to allow banks to expand their credit,” she said, adding a change is possible next month.
Several international financial organizations have pegged GDP growth at less than 5 percent in 2008 after a decade of double-digit growth.
John Nelmes, the country representative for the International Monetary Fund, wrote in a Wednesday e-mail that current trends indicate that the inflation rate will reduce to single digits, and that the reserve could be adjusted because of the new situation.
“A modest reduction of a few points from the current rate of 16 percent would be appropriate,” he wrote.
Stephen Higgins, CEO of ANZ Royal Bank, said the economy has changed, and the government must change its economic policy.
“The NBC has achieved what they wanted to do, so the need to keep the reserve rate at 16 percent is probably diminished,” he said. “Cambodia now has a different set of economic challenges.”
Finance Ministry officials could not be reached for comment.
Sung Bonna, president of Bonna Realty, said people are unable to get loans and that has slowed down the real estate and construction sectors.
Property prices have decreased 25 to 30 percent since July because of low demand, he said.
In early 2008 the number of sellers equaled the number of buyers, but now sellers outnumber buyers five to one, he estimated.
Lowering the reserve rate is a “great idea,” he said. “It would make people feel more confident.”
Tan Monivann, deputy director for commodities trader Mong Riththy group, said that his company had to stall plans for a $10 million palm oil plantation when it was denied a loan late last year. Since then it has found Thai partners to continue with the project, he said.
“If the reserve rate is lower borrowers will be able to get the loan to run their business,” he said.
Chy Sila, owner of CBM Corporation, which owns the BBW World fast food chain, said a lack of credit for buyers has helped cut back on his plans to build 60 townhouses in Sihanoukville in Preah Sihanouk Province.
“If you are asking for loans it is a difficult task,” he said. “The banks are not giving loans easily to individuals,” he added.
(Additional reporting by Phorn Bopha)