NPL pressures last year sent interest rates rising further

Photo by: SOVAN PHILONG

A customer leaves the headquarters of ACLEDA Bank last month in Phnom Penh. Banks were expected to remain less motivated to encourage deposit growth this year due to healthy liquidity.

via CAAI News Media

Monday, 25 January 2010 15:01 Nguon Sovan

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PRESSURES from non-performing loans caused borrower interest rates to rise in Cambodia last year, experts say.

The National Bank of Cambodia’s annual report showed that although interest rates for deposits fell in 2009, interest rates on loans rose, despite a concurrent fall in borrowing rates offered by microlenders.

Average interest rates for six-month loans in riels and US dollars increased from 18.77 percent and 16.3 percent respectively at the end of 2008, to 22.21 percent and 17.13 percent respectively at the end of 2009.

In the meantime, average rates for six-month deposits at commercial banks in Cambodia, measured in riels and US dollars, fell from 6.46 percent and 5.48 percent respectively at the end of 2008, to 5.37 percent and 4.82 percent respectively at the end of 2009.

The report explained that the rise in loan interest rates was due to a need to strengthen the standard of loans by banks “suffering pressures from the rate of non-performing loans and still-weak economic activities”.

It said that the fall in deposit rates “resulted from the fast increase, beyond expectations, of the level of liquidity in the banking system”.

According to the report, 6 percent of loans at the Kingdom’s commercial banks were deemed “non-performing” last year.

Loan disbursements increased an annualised 3.2 percent, to $2.42 million from $2.34 billion in 2008. Deposits rose up to 32.7 percent to $3.28 billion, from $2.47 billion in 2008, the report said.

The gap between loan and deposit interest rates in riels and dollars increased from 12.31 percent and 10.82 percent respectively in 2008, to 16.84 percent and 12.31 percent in 2009.

Bankers from Cambodia’s business community agreed with reasons given in the report for the fluctuations.

In Channy, president and CEO of ACLEDA Bank, said Tuesday that interest rates on loans increased last year because loans were smaller in 2009.

In 2008, he added, loan sizes were bigger because high-value land and homes were used as collateral.

“In 2009, the quality of loans became worse, the numbers of bad loans increased, so bankers focused on providing smaller loans at higher interest rates instead,” he said.

He added that last year, Cambodian banks had a high level of liquidity and therefore had no need to attract depositors by raising their interest rates.

Stephen Higgins, CEO of ANZ Royal bank, commented that he has seen deposit rates fall in late 2009 – a trend he believes will continue into 2010 due to high liquidity in the sector.