New provisions for restructured loans in 2022

Harrison White 

The National Bank of Cambodia will continue allowing financial institutions to restructure loans until June 30 this year – but will now classify them as non-performing after multiple restructures.  

The circular – not publicly released but seen by Cambodia Investment Review – outlines restructured loans that need ‘more restructuring’ should be deemed as non-performing.

It added while loans that are deemed ‘non-viable’ shall be classified as a loss at the full amount of loan value. For customers that have not been restructured before and are impacted by COVID-19 this shall not be classified as non-performing.  

Non-performing loan are defined as “interest is due or unpaid for 90 days or more”.

NBC previously allowed all restructured loans to be exempt of non-performing classification in March 2020 to ease the burden on lenders from the COVID 19 pandemic.

Speaking to Cambodia Investment Review the Cambodia Microfinance Association (CMA) agreed that it was time to start phasing out existing restructuring leeway however admitted that NPL rates would most likely rise in response.

“The CMA agrees that it is time to start phasing out existing restructuring loans and we expect a slight increase in non-performing loans, but not to a high-risk level,” a CMA spokesperson said.  

They added, “the association will observe any increase in the NPL rate carefully”.

Financial institutions remain profitable in 2021

Despite the ongoing impact COVID-19 has had on the economy Cambodia’s financial institutions have generally been able to achieve strong profits in 2021. This has been mainly attributed to an increase in lending and a reduction in operating costs through digitalization.

One of Cambodia’s most well-known lenders – ABA Bank – disclosed $153.1 million in profit after tax during the first nine months of 2021.

However, the Bank did record 14,102 restructured loans worth $720 million outstanding representing a share of restructured loans in the total portfolio at 15%.

Cambodia’s largest deposit-taking microfinance PRASAC recorded $115.3 million in the first nine months of 2021 and an NPL rate of only 1.62%.

Last year, the National Bank of Cambodia, announced it would maintain the current reserve requirement ratio at 7% until further notice.

Normally the minimum amount of cash that financial institutions must hold with the NBC is 12.5% in foreign currency (typically dollars) and 8% in the local riel currency, both these requirements were dropped to 7% in the NBCs first phase of debt relief measures in March 2020.

These measures are part of the central bank’s third phase of debt relief measures giving financial institutions more liquidity to assist the economy with more lending during the COVID 19 pandemic.

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