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Banks, MFIs asked to delay loan repayment

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A worker handles an MFI transaction at a local branch of Prasac in late 2014. Hong Menea

Banks, MFIs asked to delay loan repayment

Industry insiders and financial experts are urging local banks and microfinance institutions (MFIs) to temporarily suspend the repayment of loans to give borrowers breathing space as the spread of Covid-19 takes its toll on the economy.

A Cambodian businessman who asked to remain anonymous said the outbreak of coronavirus is slowing down economic activity in the Kingdom and affecting people’s incomes.

“Banks and microfinance institutions should consider suspending repayments for at least three to six months to ease the burden on borrowers and help maintain economic stability,” the source said.

Cambodia Chamber of Commerce (CCC) vice-president Lim Heng said CCC is studying the impact of Covid-19 on the local economy to consider whether or not to request banks and MFIs to halt repayments.

“We are collaborating with the banking sector, collecting data on which sectors have been hit the worst and are having problems repaying,” he said.

“Before the outbreak, the private sector had already been hit by the ban on online gambling in Sihanoukville. Covid-19 only adds fuel to fire. We are now collecting information to determine whether to ask financial institutions to halt repayments for a while,” he said.

Mekong Strategic Partners (MSP) managing partner Stephen Higgins told The Post that central banks in other countries have lowered the interest rates to help businesses.

However, in Cambodia, due to the high dollarisation of the economy, the National Bank of Cambodia (NBC) has little influence on this matter.

Higgins said banks here need to keep interest rates high to bring in more dollars. If deposit rates are high, lending rates will need to be high as well. “This is exactly what we saw during the global financial crisis as well.

“I don’t expect the NBC to require the financial sector to lower interest rates, and to be honest, that wouldn’t help those clients who have seen their cash flow completely dry up.

“What is needed, and what the NBC is more likely to push for, is some form of repayment holiday whereby clients who are impacted by the virus such as hotels can defer loan repayments for several months.

“This would effectively mean extending the loans for a longer period to help those with cash flow issues,” he said.

Say Sony, the senior vice-president of Prasac, an MFI, told The Post that his institution is closely following the situation of his clients and will adapt its strategy according to the case.

“We can delay or reschedule payments if the impact on the company is severe and if it shows a commitment to repay. We will continue lending as advised by NBC and the government,” he said.

On March 5, NBC asked banks and money-deposit taking institutions (MDIs) to continue disbursing loans and possibly suspend interest for businesses impacted by the Covid-19 outbreak, especially in the tourism industry.

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