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Credit Warnings Go Unheeded

May Kunmakara / Khmer Times Share:
A cash-dominated economy with high rates of credit are recipes for disaster, warns a Ministry of Economy and Finance report. Reuters

Credit in Cambodia is still vulnerable to fluctuations in non-core external funding, despite having managed to successfully moderate credit growth in the first half of this year, the government announced on Tuesday, while industry leaders remained bullish as to the health of the industry.
The Ministry of Economy and Finance’s “Macroeconomic Monitor Mid-Year Assessment”, the first of a planned biannual report, warned that the Kingdom’s credit industry was in danger from its overreliance on foreign funds.
“Both banks and MFIs [microfinance institutions] are still relying on non-core funds for financing their loans, making them highly vulnerable to any sudden stops to these non-core source of funding. For example, it is believed that the key modality of raising non-core funds is by resorting to short-term external borrowing,” it stated.
“At the first sign of any weakness in Cambodia’s financial system, these external sources of borrowing could quickly dry up. That could create a sudden credit-crunch for the financial system and subsequently result in some financial institutions going bankrupt. Such an eventuality has the potential to bring down the entire financial system,” the reported warned.
While credit growth has been lowered to 22 percent in the first half of the year, compared to 36 percent during the same time last year, more needs to be done “urgently” to rein in growth, the report stated.
In Channy, president and group managing director of Acleda Bank stressed that the bank has already started to tap into more domestic sources of capital, and shrugged off the dire warnings in the report.
“Acleda Bank has very little dependence on outside sources of funds, so Acleda isn’t worried or concerned at all,” he said, stressing strong ties with “very reputable international financial institutions.”
Say Sony, vice president of Prasac Microfinance, one of country’s largest MFIs, explained that there are three sources of funding available to MFIs in Cambodia: capital from shareholders, borrowing and deposits.
“We consider these three main sources of funds as crucial to support our operations and to build trust with our clients and depositors. We are also looking to borrow from secure sources in the US and Asia,” said Mr. Sony.
 “Since the beginning of our operations there hasn’t been a single lender who called back their loans, even during some critical situations,” he added.
Chea Serey, director general of the National Bank of Cambodia (NBC), told the Khmer Times recently that the central bank had begun imposing a reserve requirement on foreign borrowing in an effort to discourage short-term borrowing from overseas. It had also increased minimum capital requirements as a way of strengthening the capital base, and introduced efforts to strengthen the management of bank liquidity.
“As far as the NBC is concerned, credit growth has been moderated to have a soft landing. This is a result of slowing demand as well as prudent measures taken by the NBC,” she said.
“Many other measures are in the pipeline such as promoting interbank and foreign exchange markets through online trading platforms, as well as enhancing the NBC’s monitoring framework on liquidity [of banks and MFIs].”

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