NBC Director General Tal Nay Im says rise in rate of bad loans to 6 percent last year does not pose systemic threat to the banking sector following IMF concerns

There is no specific type of business that has alone pushed up the NPL rate."

AN estimated rise of 2.3 percentage points in nonperforming loans (NPLs) at Cambodia’s commercial banks during 2009 is “acceptable” and will have “no impact” on the health of the banking sector, according to National Bank of Cambodia (NBC) Director General Tal Nay Im, despite recent warnings by the International Monetary Fund.

Central bank estimates show NPLs accounted for 6 percent of all outstanding loans at year’s end, up from 3.7 percent at the end of 2008 and 5.2 percent in June.

“There is no specific business sector pushing up the NPL rate; it’s due to the economic recession across the economy, which has made repayments late,” Tal Nay Im said. “There’s no problem with it. It’s an acceptable rate, and it will have no impact on the banking industry.”

Her confidence in the sector’s health was due to a 25 percent rise in deposits over the period and a 10 percent jump in loans, she said, admitting, however, that final figures were not yet available.

“In general, in 2009, there has been a bit of a slowdown in business activity, and loan growth has also slowed, so profits in the banking industry have dropped slightly,” she said.

NBC figures show that at the end of 2008, the Kingdom’s 24 commercial banks had US$2.52 billion in deposits and $2.38 billion in loan disbursements. Net profit across the sector was $116.6 million.

Cambodia now has 27 commercial banks.

Tal Nay Im said she expected 2010 to be a better year for banks, though admitted that the sector was heavily dependent on economic conditions abroad and the recovery of key export sectors, particularly garments.

The director general’s optimism comes following a warning by the IMF in a report last month that many banks in Cambodia were hiding the true extent of NPLs, which it said were likely to rise further.

“A number of banks continue to report few or no NPLs, suggesting incomplete adherence with the new loan classification and provisioning regulation,” the report stated. “Moreover, the evergreening of loans and capitalisation of interest still take place to avoid loan loss recognition and provisioning and possible capital writedowns. These practices appear particularly acute for overdraft loans used to finance land purchases during the recent property boom.”

The fund did not single out individual banks, in line with its standard procedures, though industry insiders say the practice is an open secret.

The fund also warned of falling profitability at banks as deposits continued to rise at a much faster rate than loans.

NBC Deputy Governor Neav Chanthana rejected the report last month.

ACLEDA Bank increased its loan portfolio 12 percent to $532 million in the year through to December, 31 percentage points lower than loan growth in 2008, according to In Channy, the bank’s president. Deposits increased 35 percent to $687 million.

“As a whole, banks would gain less profit in 2009 due to slow growth in loan disbursements, which are the most important source of revenues,” he said.

ACLEDA had not yet finalised its profits for 2009, but In Channy predicted it would be half last year’s figure at $19.4 million. He put bad loans at 1.05 percent, up from 0.23 percent at the end of 2008.

“There is no specific type of business that has alone pushed up the NPL rate, but all business sectors have a small slice of late repayments, so the NPL rate has gone up in 2009,” he said.

In Channy said he expected the passage of a law allowing foreigners to co-own buildings to lead to an increase in demand for credit, both through individual mortgages and through project financing as new construction picks up in expectation of fresh demand for residential properties.

The domestic property sector slumped in the lead-up to the national elections in 2008. It was expected at the time to be a temporary lull as the country waited for Prime Minister Hun Sen to consolidate his power, but a recovery never came after the global financial crisis undermined confidence further and buyers started waiting for record land prices to drop.

Ramesh Chandra Baliarsingh, chief executive of the Bank of India, which opened its first branch in the Kingdom last year, said Thursday that the strong economic growth in the past and absence of complex financial instruments helped the Cambodian banking sector withstand the global financial turmoil of 2009. He predicted there would be more lending opportunities in 2010 as the global economy began to recover.

“We strongly believe that 2010 will begin with a positive note because financial indicators in most countries have started showing signs of recovery,” he said. “I feel that credit uptake will increase by around 10 percent for the whole banking industry in 2010.”

Angkor Capital Bank General Manager Alex Ng said deposits had grown to $18 million since the bank launched in November 2008 and loans to $10 million. “We grew well in 2009 and also we expect to good growth in 2010,” he said. “Deposits are forecast to double and loans to increase about a third as the economic situation – here and around the world – has begun to recover gradually.”