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NBC rejects report on loans

Central bank official scoffs at IMF staff, as others sceptical of NPL rates

The National Bank of Cambodia on Friday rejected International Monetary Fund concerns about underreporting of non-performing loans (NPLs).

“The IMF’s report is based on the views of its staff, who only come for a short time,” NBC Deputy Governor Neav Chanthana said Friday.

She was referring to the two-week Article IV consultations that concluded in September and formed the basis of an IMF report last week that said the level of NPLs in Cambodia was likely to be much higher than reported.

“But we work closely on the sector every day, and we pay attention to the statements from our banks, not the IMF’s report,” Neav Chanthana said.

According to central bank figures, reported NPLs rose to 5.25 percent at June 2009 from 3.75 percent in December 2008, which the IMF said understated the reality.

“In particular, a number of banks continue to report few or no NPLs, suggesting incomplete adherence with the new loan classification and provisioning regulation,” the report said.

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

ACLEDA Bank President In Channy said he agreed broadly with the IMF report but declined to comment on the reporting practices at other banks.

ACLEDA’s NPL ratio dropped from 1.6 percent at the end of June to 1.3 percent at the end of September, he said.

The bank reported a 0.2 percent NPL ratio at the end of 2008.

“We don’t have any problem with ACLEDA’s status,” In Channy said.

Cambodian Economic Association (CEA) President Chan Sophal said underreporting from banks probably meant that the NPL situation was even worse than feared.

An as-yet unpublished CEA survey of 1,000 families in Phnom Penh and 15 towns and cities in nine provinces across the country showed that people were struggling to make repayments and suggested that an increasing number would default.

“Everything in the banking sector could be worse than they said,” Chan Sophal said.

The IMF said a Financial Sector Assessment Programme scheduled for 2010 will examine the soundness of the banking sector in greater depth.

Neav Chanthana said the central bank moved to strengthen the banking sector ahead of the global financial crisis through issuing more stringent regulations on loan provisioning, boosting capital requirements and imposing new limits on loans to the property sector and related parties.

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