Bad loans climb as crisis arrests profits and lending growth

MICROFINANCE non-performing loans (NPLs) rose an estimated 2.3 percentage points last year as profits at most microlenders fell by double digits, the president of the Cambodian Microfinance Association (CMA) said Sunday.

Hout Ieng Tong, citing preliminary results before data are finalised and published later this week, said that bad loans hit 3 percent and loan disbursement grew just 4 percent last year to US$455 million, a rate much lower than the explosive growth seen in previous years – loans grew 61 percent year on year in 2008.

“The [bad loan] rate is up, but it’s still a good rate,” he said.

NPLs were just 0.67 percent in 2008, according to CMA figures.

Hattha Kaksekar Ltd lent 6.7 percent more in 2009, said Hout Ieng Tong, who is also general manager of the microlender, which again represented a huge decline in growth.

The firm saw lending grow 31.5 percent in 2008 and 29.5 percent in 2007 as the industry experienced booming growth. Hattha Kaksekar Ltd saw profits fall 30 percent year on year in 2009, he added, without disclosing a breakdown of the figures.

“The profit drop is due to lowering interest rates and the NPL ratio reaching 3 percent last year from zero in 2008,” he said, predicting the lender would rebound this year with 20-30 percent loan growth on the back of economic recovery and strong agricultural yields.

Prasac reported a similar stagnation for last year. General Manager Sim Senacheert said loan disboursement rose 6 percent year on year to $86.6 million while profit slid 10 percent to $2.5 million, citing lower interest rates in Cambodia but borrowing at high rates from foreign lenders before interest had reached basement levels overseas.

Slower loan disbursement at the start of 2009 when credit was tight also contributed, he added.

NPLs at Prasac reached 1.66 percent last year, said Sim Senacheert, up from 0.23 percent in 2008.

The NPL rate “increased mainly because of the financial crisis, the economic downturn and over indebtedness caused by overlapping or multiple loans”, he said. “But it is stable now and is expected to improve in 2010.”

Sathapana saw NPLS rise to just above 2 percent from 0.16 percent in 2008, said Chairman Bun Mony, with profits falling 10.5 percent to $1.7 million.

“The decline in profits does not affect operational activities – we are still making profits,” he said.

AMK saw a huge drop in profits last year of up to 53 percent to $423,897 from $903,929 the previous year due mainly to an increased tax provision following a law change, said CEO Paul Luchtenburg.

Loan disbursements fell slightly to $30.5 million last year from $31.5 million in 2008, while bad loans rose to 2.8 percent during 2009 from 0.36 percent the previous year, he added.

The biggest issue for the microfinance industry in 2010 will be ensuring strong portfolio quality and sound lending while ensuring that clients do not become over-indebted, said Luchtenburg.