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Liquidity issues dog lenders

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A woman walks through the main Canadia Bank branch in November. Cambodian bank officials say profitability is down so far this year, but that a rise in lending is a good sign that consumers are overcoming fears of borrowing as the global financial crisis abates.

However, officials see increase in loans so far this year as a signal of recovery

SURGING deposits in Cambodia’s banks over more moderate growth in loans are slowing bank profitability, banking officials say, but demand for loans is slowly increasing as people resume borrowing after the financial crisis.

“We have a huge increase in deposits.... This reflects that the confidence and trust of the general public in Cambodia’s banking system is strong,” Canadia Bank Vice President Dieter Billmeier said Monday.

Deposits at Canadia Bank stood at US$738 million for the five months ending in May, a 53.7 percent increase from $480 million on the same date last year, meaning that the bank had to pay more in interest to its depositors, he said.

On the other hand, outstanding loans totalled approximately $420 million on May 31, a 16.9 percent climb from the date a year ago.

Growing deposits had pushed the bank’s liquidity ratio to approximately 90 percent, compared to the National Bank of Cambodia's requirement of 50 percent, he said.

Liquidity ratio measures a firm’s ability to pay off short-term debt by comparing its liquid assets against its obligations.

But a cautious recovery in loan demand will continue over the rest of the year, he predicted.

“We expect total outstanding loans at the end of 2010 between $430 million on the low and $450 million at the high side. Our prudent loan application examination approach and process has not and will not change.”

Billmeier predicted positive overall growth in 2010 for Cambodia’s banking industry, adding positive trends will continue, provided that the recovery of global trade and economic development is not interrupted.

The bank’s profits before tax increased 17.2 percent in the first five months of the year to $9.5 million from $8.1 million a year ago, but he warned that Canadia’s bottom line could decline over the rest of the year.

“Historically, the second half of the year should be stronger. However, this year the interest expense due to high deposits might influence the performance of the whole year, not only for us, but for everybody like ACLEDA, ANZ Royal, Campubank, FTB,” he said.

Interest rates for fixed deposits began to fall within the last four to five months and will continue to do so, Billmeier predicted, whereas the interest rates for loans are stable and in line with last year’s rates.

Non-performing loan (NPL) rates were not a major concern for the bank, he said.

“We expect to hold the NPL rate for the whole of 2010 between 4 percent and 5 percent.”

Sector recovery
Angkor Capital Bank officials also said the banking environment is much stronger than it was at this point last year.

“Deposit at our bank grew about 22 percent to $23.5 million in the first five months of this year versus the same period last year, and lending grew about 18 percent to $17.8 million,” general manager Alex Ng said Monday.

“Customers’ repayments of loans are also better than that of last year because now the economic situation is recovering.”

The bank, which launched in Cambodia in November 2008, forecasted its deposits and lending to grow to $30 million and $24 million, respectively, this year.

ACLEDA Bank officials said that the bank was trying to keep deposits at their current rate, and had taken measures to promote lending instead.
“The bank has lowered interest rates on fixed deposits and encourages more lending by offering lower interest rates on loans,” ACLEDA’s executive vice president and chief financial officer, Chhay Soeun, said Tuesday.

The bank reported that deposits increased by 34 percent to around $796 million in the five months to May this year, from $593 million for the same period last year, while outstanding loans rose by 36 percent to around $603 million, from $442 million at the end of May last year.

Net profits after tax stood at $7.5 million for the year as of May 30, from $4 million in the first five months last year, Chhay Soeun said.

He added that he expects profits of at least $15 million for the year.

National Bank of Cambodia Director General Tal Nay Im declined to comment Tuesday on the sector’s first-five-month performance, as did NBC Vice Governor Neav Chanthana.

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