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Logo of Phnom Penh Post newspaper Phnom Penh Post - Bank lending limits irk developers

Bank lending limits irk developers

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Cambodia's property developers are calling on the central bank to relax guidelines limiting the proportion of their total lending commercial banks can extend to the property sector

Photo by: NATHAN GREEN

Even without the NBC guidelines, there is no guarantee banks will be open to property loans.

CAMBODIAN developers are calling on the central bank to ease restrictions on bank lending to the property sector.

Guidelines from the National Bank of Cambodia issued in May limit loans to the property sector to 15 percent of banks' total loan portfolios.

Some developers are asking for the threshold in the guidelines to be boosted to as much as 50 percent of banks' total loan portfolios. They say freeing up lending will enable them to push ahead with development at a time when construction costs are plummeting as demand for building materials dries up.

"A 15 percent limit is too small for developers to run their business," said Kong Vansophy, general manager of the Dream Town development in Phnom Penh.

"For me, I think at least 45 percent or 50 percent is needed for developers to push ahead on real estate projects."

He said the current loan threshold meant banks could lend enough for developers to buy land, but not to build on that land.

I think at least

45% or 50% is needed for developers to push ahead.

"I think if developers want to invest in real estate they must have access to financing equivalent to 50 percent of their own budget," Vansophy said.
Too severe

Chhean Dara, project manager at the Happiness City development, also in Phnom Penh, said the central bank was right to keep a close eye on the situation, but thought a 15 percent cap was too severe.

15%

 The maximum percentage of their loan portfolios that banks should extend to the property sector, according to National Bank of Cambodia guidelines

"I want them [the NBC] to increase loans to the property sector to between 30 percent and 40 percent of bank portfolios to assist developers," he said.

He added that banks should manage their own risk rather than have it controlled by the central bank. "I think banks want to protect developers who have taken loans to buy land but can't sell units to raise money for development," he said.

"If they cannot raise money to finish their developments and sell the units, they will not be able to return money to the bank on time, or they won't have the money to pay back."

Tal Nay Im, director general of the National Bank of Cambodia, defended the policy and said the guidelines would not be changed, at least not while the effects of the global financial crisis continued to be felt.

"They [developers] can complain all they like," she said. "We only want to protect banks from those developers who want to cheat Cambodian people."

The guidelines, however, were not backed by penalities or law, meaning banks are in principle able to boost their lending to the real estate sector.

But Stephen Higgins, CEO of ANZ Royal, said the guidelines weren't the only factor determining whether banks had an appetite to lend for property projects.

"While the 15 percent is a guideline, the reality is that if the central bank wants you to do something, you are generally going to do it," he said.

"[But] even without the 15 percent guideline, I'm not sure that banks would be lending much for property at the moment given how uncertain the property market is."

Representatives of ACLEDA Bank, Canadia Bank, Advanced Bank of Asia and Cambodia Asia Bank spoken to by Prime Location all said they would follow the bank's guidelines. The threshold was up to the central bank, they said, but all refused to discuss the issue further.

Construction costs in Cambodia are traditionally met through deposits from buyers, rather than bank financing. However, property sales have dried up in Cambodia in recent months, due largely to uncertainties over the political relationship with Thailand and a lack of confidence in the wake of the global financial crisis.

Kong Vansophy said there were few people looking to buy land or housing. "I see only sellers announcing they want to sell land in a hurry," he said.

Lan Sinnara, deputy director of Cambodia Estate Agent, said if the restrictions continued the real estate sector would "go down fast".

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