Bank reserves slashed; real estate limits axed

Written by Nguon Sovan

Monday, 26 January 2009

The National Bank of Cambodia has cut reserve requirements and stopped loan limits for property, effectively ending its long fight against inflation Photo by: Vandy Rattana National Bank of Cambodia Governor Chea Chanto in this file photo. The NBC hopes looser monetary rules will boost growth. THE National Bank of Cambodia has cut the bank reserve requirement from 16 percent to 12 percent and eliminated restrictions on real estate lending effective February 1, in a bid to boost sagging property prices and stimulate lending. The industry applauded the move, which constitutes a reversal of its monetary tightening measures brought in last year to cut inflation and rein in soaring property values. Officials say they hope the looser rules will stimulate lending amid a worsening economic crisis. "We increased the reserve rate [in June] because we were vigilant over the crisis and to prevent inflation. Now inflation is falling, so we lowered it to give banks easy cash to provide more loans to their customers," National Bank of Cambodia Director General Tal Nay Im told the Post Sunday. New problems Inflation rocketed to 25.1 percent in the first half of 2008 and dropped to 13.46 percent in December 2008, according to the Planning Ministry's National Institute of Statistics. Stricter lending rules were in part to reduce liquidity and stem inflation. But lower commodity prices and a stagnating economy have taken inflation out of the limelight. Experts in Cambodia and abroad now say the priority is to boost growth. Stephen Higgins, chief executive officer of ANZ Royal Bank, said the new policy shows that times have changed. "Inflation will cease to be an issue very soon and [the reduction] will help combat an economic slowdown, so I think it is a sensible policy measure from the central bank of lowering the reserve rate," he said. "However, we will continue to do what we have been doing, which is lending to good-quality customers. For us, we don't expect a big change [more loans] to customers through the lowering," Higgins said. Malaysian-owned Maybank said that the new rules would allow them to increase lending. "Definitely, that will help us to provide more loans to customers," said Jubely Pa, general manager of Maybank Group. The real estate industry welcomed the bank's move to scrap the limit on real estate lending imposed in May last year. Real estate recovery? Kong Vansophy, general manager of the US$1 million Dream Town development in Dangkor district's Choam Chao area, said the reform could provide a much-needed boost to the sector. "We are having difficulty borrowing money from banks because they are required to restrict lending on real estate to less than 15 percent of the total loan portfolio," he said. "We hope that lowering the reserve rate will allow real estate buyers and developers to access more loans."