Thailand
Cambodia: Recovery from pandemic may damage the banking sector
Cambodia’s recovery from the economic impact of the Coronavirus pandemic may hurt the country’s banking sector if its pace is uneven, say experts.
In a report on the risks to emerging market (EM) banks worldwide, Moody’s Investors Service said there are a number of risks to EM banks if the bounce back is a bumpy ride.
Moody’s warned that loan performance will deteriorate once fiscal support for economies runs out. The ratings agency says high unemployment and the end of Covid-related support for borrowers will weaken loan quality. Even after economies recover, Moody’s says some pandemic-related restructured loans will become impaired.
“Economic activity in most emerging markets is still below pre-pandemic levels. The uneven economic recovery poses risks to borrowers’ earnings and cash flows,” Moody’s warned.
In spite of the pessimism Moody’s was quite upbeat about Southeast Asian banks, without mentioning those in Cambodia. Its outlook on Vietnam’s banks is positive, reflecting strong economic growth and a relatively modest impact of the pandemic on the banking system.
Banks in Indonesia, Malaysia, Thailand and the Philippines are judged to be stable by Moody’s, reflecting strong loss-absorbing buffers. Cambodia’s banks were in a strong position ahead of the Coronavirus pandemic, according to In Channy, chairman of the Association of Banks in Cambodia (ABC), and chief executive officer (CEO) of ACLEDA Bank. He told Khmer Times in March that bank assets amounted to $42.2 billion in 2019, up more than 23 percent, compared with 2018.
Most Cambodian banks are well capitalised, Channy said. The solvency ratio edged down slightly to 24 percent in 2019 compared with 24.2 percent in 2018 and is well above the 15 percent minimum.
“The banking sector still looks to be in a strong position” said Heng Koy of the ABC Secretariat. “Deposits from the public and other clients still look good. In terms of the need for loans, that is also strong. Its higher than last year but not at the level we expected. However, if we compare the current situation with February and March, during the lockdown, when loan demand fell, it has recovered to about the same level as last year”.
Even though the economy is starting to recover from the effect of lockdowns, sickness and the psychological impact of Covid, Cambodia’s banks are still suffering from a rise in non-performing loans, but the secretariat says its optimistic loan restructuring will drop over the rest of the year.
“In terms of the effect of Covid-19 on non-performing loans, as of May the whole banking and microfinance sector saw a level of about 13 percent of loans being restructured compared with total loans. If we compare that with last year, loan restructuring was about 11 percent of outstanding loans. Our forecasts for 2021 depend on how much Covid-19 continues to impact”, said Koy. “If it is manageable, like currently, the situation will be much better. At the association, we believe that with the direction and leadership of the government so far, Cambodia is very good in terms of vaccinations. That’s an important approach to dealing with the pandemic. Thirty-five percent of the population is vaccinated. In high-risk areas such as Phnom Penh, Sihanoukville and Siem Reap most people have been immunised and by the end of the year, 10 million people should have been vaccinated. If the government can reach that target, I think the banking sector will be at the same level or better than last year”.
The ABC and the Cambodia Microfinance Association are stepping up efforts to increase financial awareness through the Khmer language social media networks of all ABC members.
Stable funding and liquidity remain credit strengths of Asian banks, Moody’s said.
“Banks in the region will maintain ample liquidity with little dependence on market funds, supporting their credit profiles” it said.
Source: https://www.khmertimeskh.com/50880678/recovery-from-pandemic-may-damage-the-banking-sector/