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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.

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