The business community has called on financial institutions (FI) to suspend principal and interest payments for a few months to share the burden with customers in light of the ongoing Covid-19 outbreak.
As the government scrambles to contain the country’s third community transmission – which has seen cases rise to 1,914 with 677 recoveries since the February 20 outbreak – virtually all economic sectors and the general public are struggling to make ends meet during these trying times.
In a bid to help affected sectors and keep businesses afloat, the government has issues eight rounds of relief measures since the SARS-CoV-2 coronavirus, which causes Covid-19, emerged in late 2019.
Anthony Galliano, the group CEO of financial services firm Cambodian Investment Management Co Ltd, said the outbreak greatly exacerbates the health risks that the Kingdom faces and can only be described as socio-economically devastating.
After enduring a year-long economic downturn – felt much more severely in the tourism, hospitality, garment and construction sectors – businesses have been dealt another punishing blow in an economy that had just started on the uptick towards recovery, he said.
“The banks will be confronted with a conundrum, should they continue to restructure loans with further payment delays for businesses in a precarious condition.
“The more prolonged and drastic the economic downturn, the higher the probability that struggling businesses will not survive – and this last community spread has been the most acute.
“The silver bullet is mass vaccination at the fastest pace possible, which will result in an immediate turnaround and pave the path for reopening the country,” he said.
Cambodia Rice Federation (CRF) vice-president Chan Sokheang, who is also chairman and CEO of Signatures of Asia Co Ltd, noted that while the rice sector had avoided much of the ravages of a global financial crisis that has pummelled the Kingdom’s other industries, economic ramifications remain on traders’ and millers’ minds.
He pointed out that a crippling worldwide shortage of containers threatens the timeliness of milled-rice shipments, presents a cash-flow challenge and heightens the risk of missed loan repayments from the sector.
Still, he showed solidarity with his cash-strapped peers across the broad spectrum of industries. “The spread of Covid-19 has been affecting almost all sectors. We appeal to FIs to consider a flexible way in which to help our people and businesses during these tough times,” Sokheang said.
And few industries have felt the pinch of the Covid-19 pandemic as much as tourism.
Pacific Asia Travel Association Cambodia chapter chairman Thourn Sinan proposed to the National Bank of Cambodia (NBC) that it issue a clear statement to FIs to find a way to suspend principal and interest payments for a few months, suggesting that they extend loan repayment terms.
“We don’t deny that FIs have restructured loans following NBC requests but people still need to pay interest, while others also impose fines for those who pay late.
“Of course, I know that the banks also need to keep earning but they have to be aware of the current situation – our economy has been hit hard by the health crisis.
“As a result, I suggest that banks and microfinance institutions [MFI] be obliged to share the pain felt now. If FIs can provide the extensions, there’ll be hope for us to survive and the move will also allow our people to breathe.
“Pick up on the fact that FIs always make profit while other businesses are nearing death – we need support from them,” he said.
PRASAC Microfinance Institution Ltd senior vice-president Say Sony told The Post that his MFI has pulled out all the stops to undergird its clients’ businesses during the pandemic and will continue to issue new loans to those who need an extra hand to restart operations or reinvest.
“With these challenges in mind, we are working closely with our clients to deal with these hard times together no matter if they need more money, or if we’ll have to reschedule their loans, or if they are able to pay them off and obtain new loans when the situation reverts to normal,” he said.
Sony added that PRASAC restructured some $344 million in loans, or 11.5 per cent of its portfolio, for more than 34,000 borrowers as of February 28 since NBC issued a circular on loan restructuring during Covid-19 on March 27 last year.
The directive was issued to all banks and FIs to restructure credit for loans in four priority sectors – tourism, garments, construction, and transport and logistics, which NBC flagged as the most severely affected by the pandemic.
The circular aimed to maintain financial stability, support economic activity and ease the burden of debtors facing declining revenues during the ongoing Covid-19 outbreak. The directive will be implemented until mid-2021.
ACLEDA Bank Plc president and group managing director In Channy told The Post that banks around the world have a similar funding structure – 15 per cent from paid-up capital, 15 per cent from long-term debt issued by international FIs and 70 per cent from domestic savings and fixed-term deposits.
“If the banks are asked to postpone both interest and loan principal, who will be responsible for paying the interest for savers and depositors? They need the banks to pay them back both interest and principle when they are due to be paid, and those who lend to the bank require banks to pay back to them interest plus principle when due.
“FIs also have debt and the obligation to pay them back, too,” he said.