Bank loan portfolios set to be at least 10% in local currency

Cambodian commercial banks are showing a stronger preference to provide riel loans to microfinance institutions (MFI) as they rush to increase the share of local currency in their loan portfolio to at least 10 per cent by the end of next year.

The move serves to comply with a new requirement by the National Bank of Cambodia (NBC) which, in December 2016, issued a prakas that instructed all banks and MFIs to hold a minimum 10 per cent of their loan portfolio in riel.

The NBC has given commercial lenders until the end of next year to comply.

Several foreign-owned banks that The Post talked to recently have said they currently have below five per cent of their loans in riel.

However, they are optimistic of complying with the central bank’s regulation next year, considering MFIs are their target customers to enlarge their riel loan share.

Phillip Bank’s general manager Han Peng Kwang said that starting from a zero-base, his bank has built up a percentage of riel loans in its loan portfolio since the NBC issued the prakas.

He said Phillip Bank will meet the requirement by December next year and that the main potential clients are those in the MFI sector such as Micofinance Deposit Taking Institutions (MDIs), MFIs and Rural Credit Operators.

“We understand that riel transactions are more prevalent and acceptable for people living in the provinces and rural areas and they prefer riel loans as well.

“Since Phillip Bank does not have any presence in the provinces yet, we will offer wholesale lending to MFIs who have branches throughout the provinces and require funding in riel to meet the financial needs of the people in the provinces and rural areas.”

Han said the majority of borrowers in Phnom Penh still prefer to apply for loans in US dollars rather than riel, even though some have become more receptive to borrow a portion of their loan in riel.

Commercial banks in Cambodia, which are mostly foreign-owned, said at a meeting between the banking industry and NBC’s representatives late last year that the requirement to have a minimum 10 per cent of their loan portfolio in riel is a challenge.

This, they said was because their biggest clients exhibited a strong preference for deposits and loans in foreign currencies.

At the meeting, the insiders said only about two per cent of the banking sector’s loan portfolio was denominated in riel, with Acleda Bank and MFIs accounting for almost the entire total of these local currency loans.

PPCBank president Chang Moo Shin, whose bank has about $570 million of outstanding loans, said less than five per cent of it is in riel.

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