Vijian Paramasivam
Amidst a backdrop of a slowing economy, financial institutions in Cambodia are pivoting their focus toward more humane and technologically advanced methods to manage corporate debt. A joint seminar entitled “Navigating Corporate Debt Management: Banking and Legal Insights” was recently hosted by AmCham Cambodia, the Association of Banks in Cambodia, and the Cambodian Association of Finance and Technology. The event highlighted the urgent need for lenders to revise their debt collection processes to avoid exacerbating the financial distress of borrowers.
Industry leaders at the seminar emphasized the importance of incorporating data analytics, digitalization, and financial literacy into the debt collection process. Such advancements are critical in reducing loan losses, which otherwise pose a threat to the overall health of a bank’s balance sheet.
A Balancing Act in Downturn
Deputy CEO of Sathapana Bank Plc, Jean Pierre Gagnon, underscored the importance of collaboration and restraint during economic downturns. “During a downturn, we need to work together to help the country navigate the problem,” said Gagnon. He emphasized the necessity for both banks and borrowers to sit together and discuss pragmatic solutions for loan repayments. “Often we say bankers give umbrellas when it is sunny, but we also have a role to play when it is not sunny. It is a very difficult balancing act,” he added.
Stephen Higgins, Managing Partner of Mekong Strategic Capital, presented a less-than-optimistic view of the Cambodian economy. His firm forecasts a modest 2.5% GDP growth for this year, significantly lower than the World Bank’s projection of 5.5%. Higgins noted that critical sectors like tourism, property, and exports are showing sluggish performance. Specifically, the garment export sector has suffered an 18% drop in the nine months to September 2023, partly due to inventory overstock in the U.S.
Addressing the Bad Loans Dilemma
Given the bleak outlook, around 750 registered businesses in Cambodia may find it challenging to meet their loan repayment obligations, thereby adding further strain to the credit market. Gagnon said, “There is an indication that the economy is slowing down which may translate to a higher non-performing loan (NPL) rate. Banks face the difficult choice between tightening credit or continuing to lend to help businesses navigate through tough times,” he explained.
Pradhan Prashanta, Head of Research and Development at the Credit Bureau of Cambodia (CBC), stated that digitalization and data analytics would continue to revolutionize the banking space. “Traditional approaches to risk monitoring and management are no longer adequate in the face of rising credit risks and economic uncertainty,” Prashanta said.
The CBC research head highlighted the importance of multichannel communication for reaching customers at multiple touchpoints and noted significant advancements in local data and digital infrastructures like Bakong, CamDX, and CBC that can significantly contribute to more effective debt management.
Comprehensive Risk Management
Sok Vaneska, Managing Partner at Sethalay Law Office, emphasized the necessity for an inclusive risk management strategy that includes credit risk, operational risk, market risk, and liquidity risk.
BIC Bank Plc CEO Hong Sokleng advised that bank officers should establish a good relationship with their clients and closely monitor their business progress from day one. “In the Cambodian market, we not only rely on system monitoring but also on social information and public relationships,” Sokleng said. He added that banks sometimes go the extra mile to help clients find potential buyers for collateral properties.
As Cambodia faces economic challenges, the seminar served as a reminder that a multi-pronged approach involving technology, humane practices, and comprehensive risk management is essential for effective corporate debt management.
