Logo of Phnom Penh Post newspaper Phnom Penh Post - Credit growth starts to cool off

Credit growth starts to cool off

A woman waits with her daughter for a loan application to be approved at a branch of a microfinance institution in Kampong Speu province in December 2014.
A woman waits with her daughter for a loan application to be approved at a branch of a microfinance institution in Kampong Speu province in December 2014. Hong Menea

Credit growth starts to cool off

New data released by Cambodia’s independent credit reporting agency indicate a significant slowdown in the rate of lending during the second quarter of the year, a sign that banking industry experts claim is due to a tightening of lending criteria and less seasonal demand from the struggling agricultural sector.

The Credit Bureau Cambodia (CBC) said in its inaugural quarterly publication that overall credit applications – which include personal finance, credit cards and mortgages – decreased by 25 per cent during the second quarter of the year. Personal finance and mortgage applications decreased by 26 per cent and 10 per cent, respectively, since the first quarter.

“The fall is mostly due to a decrease in personal finance applications in all regions of Cambodia,” the report stated. “Mortgage applications have also experienced a slight drop in the number of applications, but the value seems to remain stable [compared to the first quarter].”

According to the report, outstanding consumer lending balances increased by 6.75 per cent during the second quarter to reach $2.73 billion, with some 631,000 new loans issued so far this year.

Stephen Higgins, managing partner of investment firm Mekong Strategic Partners, said the second quarter decline in the pace of credit growth was long overdue after a period of rapid growth.

“It’s a welcome decline after the 49 per cent increase we saw in the previous quarter, and I suspect there is a large seasonal element to it,” he said, adding that overall growth of 19 per cent for the first half of the year “is still pretty strong”.

CBC’s data, which is collected from lending institutions registered with the central bank, also provided insights on regional variations in the data set. It showed, for instance, that the northeastern provinces saw the biggest decline in personal finance applications, which fell by 35 per cent since last quarter.

Meanwhile, these same provinces experienced the highest growth in credit card applications, which shot up a whopping 1,200 per cent during the quarter, compared to a national average increase of 69 per cent, though presumably from a low base.

The decline in mortgage applications was more evenly spread across Cambodia, averaging 10 per cent, except in the northwestern corner of the country, where the decline was just 2 per cent.

Meanwhile, the non-performing loan (NPL) ratio reached 1.46 per cent during the quarter. The highest growth was reported in the northeastern provinces, where the NPL ratio climbed 143 per cent to reach 1.69 per cent.

While the CBC did not provide any reasons on why consumer credit growth declined during the second quarter, Nay Sambo, senior specialist for credit information at Acleda Bank, suggested that the Kingdom’s financial institutions had noticed a deterioration in the quality of credit, compounded by the nation’s struggling agricultural sector, and adopted a more cautious approach.

“The economy is not so good right now for lending,” he said. “And we are seeing that some banks do not have good lending portfolios and are reviewing their credit policies and becoming stricter with lending.”

Sambo said the low growth of the agricultural sector, which has suffered the consequences of a prolonged drought, prompted Acleda Bank to adjust its lending strategy.

“Before we didn’t care about the loan quality and sometimes, especially last year, we would just use any collateral or unmoveable assets to issue credit,” he said. “Now we are not offering loans for startups and have become strict on agricultural lending, because we need to see if there is actually a demand for the products being produced.”

Commenting on the double-digit growth of credit card applications, he said that there was an industry-wide push for new products that do not require collateral.

“Credit cards are just a new product that banks are using aggressively through marketing [in an attempt] to grab as many customers as possible,” he said.

He claimed that credit card growth does not exacerbate credit risk as most lines of credit are under $3,000, and have more favourable repayment plans than traditional bank loans.

Bun Mony, CEO of Sathapana Bank Plc, also played down the rise of credit cards, which he said have little impact on lenders’ exposure and were not being used to supplement traditional loans. Moreover, he did not see it as a factor slowing credit growth, which he attributed instead to a symptom of struggling farmers not looking to take on further debt.

“Many clients can’t produce enough liquidity to pay back their loans right now,” he said. “It is very difficult to [think] that more lending would improve their situation.”

He said demand for credit should start to kick in if the wet season brings sufficient rain to ensure a good harvest.

MOST VIEWED

  • Phnom Penh placed in two-week lockdown

    The government has decided to place Phnom Penh in lockdown for two weeks, effective April 14 midnight through April 28, as Cambodia continues to grapple with the ongoing community outbreak of Covid-19, which has seen no sign of subsiding. According to a directive signed by Prime Minister

  • Cambodia on the verge of national tragedy, WHO warns

    The World Health Organisation (WHO) in Cambodia warned that the country had reached another critical point amid a sudden, huge surge in community transmission cases and deaths. “We stand on the brink of a national tragedy because of Covid-19. Despite our best efforts, we are

  • Hun Sen: Stay where you are, or else

    Prime Minister Hun Sen warned that the two-week lockdown of Phnom Penh and adjacent Kandal provincial town Takmao could be extended if people are not cooperative by staying home. “Now let me make this clear: stay in your home, village, and district and remain where

  • Businesses in capital told to get travel permit amid lockdown through One Window Service

    The Phnom Penh Municipal Administration has issued guidelines on how to get travel permission for priority groups during the lockdown of Phnom Penh, directing private institutions to apply through the municipality's One Window Service and limit their staff to a mere two per cent. In

  • Vaccination open to foreigners in Cambodia

    The Ministry of Health on April 8 issued an announcement on Covid-19 vaccination for foreigners residing and working in Cambodia, directing the Ministry of Labour and Vocational Training and local authorities to register them. Health minister Mam Bun Heng, who is also head of the inter-ministerial

  • Ministry names types of business permitted amid lockdown

    The Ministry of Labour and Vocational Training singled out 11 types of business that are permitted to operate during the lockdown of Phnom Penh and Takmao town, which run through April 28. Those include (1) food-processing enterprises and slaughterhouses; (2) providers of public services such as firefighting, utility and