Delinquent loan rate continues to rise

A CPP billboard in front a microfinance office in Kandal province’s Takhmao town in June 2017.
A CPP billboard in front a microfinance office in Kandal province’s Takhmao town in June 2017. Pha Lina

The rate of microfinance loans with overdue payments nearly doubled last year according to the National Bank of Cambodia (NBC), though it remained within a normal range and was coupled with a rise in deposits.

The rate of nonperforming loans (NPL) – loans where payments are more than 30 days overdue – was 2 percent at the end of 2017, up from slightly more than 1 percent at the end of 2016, according to the NBC’s 2017 Annual Report.

 

That rate is “not unreasonable”, according to Stephen Higgins, managing partner of Mekong Strategic Partners, who noted that lower crop prices and high levels of rural indebtedness were likely responsible for the rise.

Sok Voeun, CEO of microfinance institution LOLC (Cambodia), agreed the rate was normal, but also noted the continued year-over-year rise in overdue loans was a cause of concern.

 

“It alerts us to be more cautious, because [the NPL rate] keeps increasing, from 0.5 percent to 1 percent and rising further to the current 2 percent level,” Voeun said.

Voeun, who also is on the board of directors for the Cambodia Microfinance Association (CMA), said that last year’s low price for crops was to blame for the rise of overdue loans. He said MFIs had already begun tightening lending requirements and offering fewer small loans, and downplayed the significance of the 2 percent number.

“In practice, other countries that operate microfinance services cannot keep the NPL rate below 5 percent,” Voeun added. “They have 7 or 8 percent, which is much higher than us.”

According to the report, the total number of people with outstanding microfinance loans decreased slightly last year, down from 1.9 million borrowers at the end of 2016 to 1.75 million at the end of 2017.

But despite the decline in borrowers, the total volume of loans in the MFI sector grew 25 percent in 2017, reaching $3.9 billion by the end of the year. The average loan size increased and fewer small loans were being offered largely due to the government’s decision to cap interest rates at 18 percent in March, according to Voeun.

Deposits at MFIs also rose sharply in 2017, reaching $2 billion at the end of the year, a more than 35 percent increase over 2016. That 35 percent growth rate exceeded the 25 percent growth rate of loans, a fact Higgins praised as a positive sign for the overall health of the economy.

Deposit growth also outpaced outstanding loan growth in the banking sector last year, with deposits rising 23 percent to $17.2 billion and loans rising 17 percent to $16.2 billion by the end of 2017.