As the year draws to an end, bankers say that low levels of lending and high interest paid on deposits continue to hamper profitability.
While deposits have grown some 21.2 percent to $4 billion since the end of 2009, lending has increased by just 12 percent to $2.8 billion, according to central bank data.
To ease this pressure, banks this year began lowering interest rates on deposits while hoping that lending activity would return to pre-financial crisis levels seen in 2008, when outstanding loans grew by 52.7 percent.
“The banks need to lend more,” said In Channy, CEO of Acleda Bank, which is currently lending 80 percent of deposits, down from 99.9 percent prior to the global financial crisis of 2008.
Acleda’s loan portfolio increased by 32.8 percent to $722.5 million in the first eleven months of the year, while its deposits have risen around 30 percent to $894 million.
In order to increase the amount of credit in circulation, Mr Channy said that businesses must improve their accounting and auditing standards to demonstrate their creditworthiness.
“If we have financial statements, then the bank can provide the loan,” said Mr Channy.
Experts say there is a direct link between accounting standards and access to credit.
“It is true that companies in Cambodia are not accustomed with the presentation of financial statements,” said Key Kak, chairman of the accountancy Morison Kak & Associes.
Mr Kak said that for companies to improve their financial reporting the government would have to implement laws making this mandatory, as is now the case in the banking and financial sectors.
“If you take the case of other companies it seems that the government does not want to…push them to submit of prepare statements,” he said.
Meanwhile, banks are looking toward areas of the economy associated with low levels of risk–namely the retail, trade and tourism sectors–to lend money.
In its periodic economic update for the region released in October, the World Bank said high deposit levels reflected “cautious lending by banks exercised since the crisis period.”
“Most lending over the past 12 months was directed at low risk sectors,” the report stated.
“It’s easier. Not a lot easier, but easier than a year ago,” said Gui Anvanith, general manager at the Foreign Trade Bank. “We’re better off than last year.”
Mr Anvanith said the Foreign Trade Bank had avoided accepting too many deposits last year as it kept interest rates relatively low at around 5 percent, compared to as much as 8 percent for other banks.
“We did not accumulate more liquidity than we needed,” he said.
Outstanding loans at the bank now stands at $138 million, compared to $105 million at the end of 2009. Deposits have increased by 14.6 percent to $259 million.
Han Peng-kwang, senior vice president at Hwang DBS, said banks were looking for ways to increase their loan portfolio across the board.
“Loans are not growing fast enough,” he said. “The interest being paid on deposits will definitely affect the profits of the bank.”
Hwang DBS has so far reduced its interest rate on 12-month fixed deposits from 8 percent in mid 2009 to 3.25 percent today. While the bank’s loan portfolio currently stands at $8.4 million, deposits at the bank are more than $10 million. Though Mr Han said deposits had been falling “quiet significantly” since interest rates started to drop.