Lending Begins To Rise Again in 2010, Bankers Say

After more than a year of stagnation in markets and growing deposit levels, bankers in Cambodia started to announce during the last quarter of 2009 that loan activity was finally picking up again.

Key to the banks’ profitability, those claims of a lending recovery are receiving support today as two of Cambodia’s largest banks report rising loan activity in the first six weeks of 2010.

In the first six weeks of 2010, the value of lending at Acleda Bank has already hit $21 million, more than a quarter of the amount of last year’s total, according to In Channy, CEO of Acleda Bank. In 2009, Acleda’s loan portfolio increased by just $81 million, he said.

“Loan growth is doing very well,” Mr Channy said, adding that deposits levels were also still on the rise so far this year.

“So far in 2010 loan [activity] is starting to pick up,” he said. “Demand for loan applications is coming from all sectors.”

Acleda’s loan portfolio currently stands at $559 million.

Neou Seiha, a researcher at the Economic Institute of Cambodia, said yesterday that, given high deposit levels, banks may be forced to lend–a shot in the dark, given that a prompt economic recovery is less than guaranteed.

“They have to lend the money somewhere,” he said. “They try to find a way out. They may take some risks.”

“We always talk about recovery but there is no sign yet,” he added.

Annual profits at Acleda Bank fell 49 percent in 2009 as loans grew by only 16 percent, the bank reported in its annual earnings report last month. The bank said one of the main reasons for the drop in profits was because the interest paid on fast growing deposits increased while loan payments received from borrowers did not keep pace, as they had in 2008.

Due to a large rise in deposit levels, banks have been steadily reducing interest rates on loans as well as deposits. At Acleda, like most other banks, the interest rates for one year fixed deposit accounts have fallen from 7.5 percent in the first quarter of 2009 to 5.75 percent now.

The bank said one of the main reasons for the drop in profits was because the interest paid on fast growing deposits increased while loan payments received from borrowers did not keep pace, as they had in 2008.

Representatives at Canadia Bank have reported a similar story.

Dieter Billmeier, Canadia’s vice president, said his bank had increased its loan portfolio by $25 million so far in 2010. In the same period last year the bank lent “almost nothing,” he said, citing a rise of about 12 percent in demand for loans in the past three months compared to the same period last year.

“We see some light at the end of the tunnel,” he said.

Mr Billmeier added that heightened loan activity early this year was a relief for the banking sector as high deposit levels during a period of low loan activity was costing banks money.

Canadia Bank’s loan portfolio currently stands at about $390 million.

Charles Vann, CEO of Canadia Bank, said banks could do very little to prevent rising deposit levels if that is what customers were demanding.

“As the banker we always welcome the deposits so we don’t have any restriction for that,” he said.

Banks with healthy deposit levels who are experiencing low levels of loan activity tend to make deposits in the National Bank of Cambodia due to the bank’s inherent security.

“High deposit levels squeeze profits to a certain extent,” said Han Peng Kwang, senior vice president at Hwang DBS, which entered the Cambodian banking sector in July.

Although Mr Peng Kwang says Hwang DBS is still “conservative” on whom it gives loans out to, applications have increased from about ten per month midway through last year to twice that amount today.

“As far as I understand the market is probably picking up,” he said.

 

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