Credit growth begins to slow

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New data released by Cambodia’s independent credit bureau indicates a significant slowdown in the lending rate in the second quarter of the year, a sign that banking experts say is due to a tightening loan criteria and less seasonal demand from the ailing agricultural sector. .

Credit Bureau Cambodia (CBC) said in its inaugural quarterly that overall credit applications – which include personal finance, credit cards and mortgages – fell 25% in the second quarter of the year. year. Applications for personal financing and mortgage loans were down 26% and 10%, respectively, since the first quarter.

“The fall is mainly due to a decrease in personal finance applications in all parts of Cambodia,” the report said. “Mortgage applications also saw a slight decline in the number of applications, but the value appears to be holding steady [compared to the first quarter]. “

According to the report, outstanding consumer loans rose 6.75 percent in the second quarter to $ 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 decline in the pace of credit growth in the second quarter was long overdue after a period of rapid growth.

“This is a welcome drop after the 49% increase we saw in the previous quarter, and I suspect there is a significant seasonal element,” he said, adding that overall growth of 19% for the first half “is still quite strong”.

CBC data, which is collected from lending institutions registered with the central bank, also provided information on regional variations in the dataset. It showed, for example, that the northeastern provinces saw the biggest drop in personal finance apps, which have fallen 35% since last quarter.

Meanwhile, those same provinces saw the strongest growth in credit card applications, which climbed 1,200% in the quarter, compared to a national average increase of 69%, though likely from a weak base.

The decline in mortgage applications was more evenly distributed across Cambodia, averaging 10 percent, except in the northwest of the country, where the decline was only 2 percent.

At the same time, the NPL (NPL) ratio reached 1.46% in the quarter. The highest growth was recorded in the northeastern provinces, where the NPL ratio climbed 143 percent to 1.69 percent.

While the CBC has provided no reason for why consumer credit growth declined in the second quarter, Nay Sambo, senior credit reporting specialist at Acleda Bank, suggested that financial institutions in the Kingdom had noticed a deterioration in credit quality, compounded by the country’s struggling agricultural sector and took a more cautious approach.

“The economy is not that good right now for loans,” he said. “And we are seeing that some banks don’t have good loan portfolios and are reviewing their credit policies and getting stricter on lending.”

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

“Before, we didn’t care about the quality of loans and sometimes, especially last year, we just used collateral or immutable assets to issue loans,” he said. “Now we no longer offer loans to startups and have become strict on farm loans because we need to see if there is really a demand for the products being produced. “

Commenting on the double-digit growth in credit card applications, he said there was an industry-wide push for new products that don’t require collateral.

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

He said the growth in credit cards is not exacerbating credit risk, as most lines of credit are below $ 3,000 and have better repayment plans than traditional bank loans.

Bun Mony, CEO of Sathapana Bank Plc, also played down the rise of credit cards, which he said had little impact on lender exposure and was not used to supplement traditional lending. Moreover, he did not see it as a factor in slowing credit growth, which he instead attributed to a symptom of struggling farmers not looking to take on more debt.

“A lot of clients can’t generate enough cash to repay their loans right now,” he said. “It is very difficult to [think] that more loans would improve their situation.

He said demand for credit should start to pick up if the rainy season brings enough rain to ensure a good harvest.


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