Korean Air to suspend service to Siem Reap
Lenders mull moveable assets
CAMBODIAN financial intuitions should allow customers to use moveable assets as part of their collateral requirements to secure lines of credit, providing the government and lenders strengthen the legal framework for monitoring these assets, an economic researcher has argued.
Speaking at the third annual macroeconomic conference held by the National Bank of Cambodia (NBC) last Friday, Pen Vanndarong, an independent researcher and employee of microlender Hattha Kaksekar Ltd (HKL), said that if financial institutions adopted a moveable asset criteria, it would be easier for clients to access credit.
Vanndarong, said lending institutions have for too long only focused on land or property as the sole collateral to secure loans. He urged that in order for the MFI sector to continue to grow, lenders should overhaul their strategy to allow moveable assets such as cars, motorbikes, agricultural machinery and crop stocks to be classified as collateral.
This, he said, would be a major benefit for small- to medium-size enterprises (SMEs) that need quick access to capital to expand and invest.
“For lenders, moveable assets are more appropriate to take as collateral,” he said. “However, the government and related institutions should develop a comprehensive platform to ensure that risk can be mitigated,” he said.
“For instance, the Ministry of Public Works and Transporta- tion and the Ministry of Interior should be involved in setting more advanced techniques in order to justify what are legal or illegal assets,” he added.
The initiative was largely welcomed by the industry as a progressive move toward reducing the obstacles that Cambodian borrowers face.
Collateral requirements have long been considered an impediment for both lenders and clients, as lenders traditionally require that clients leverage their land or houses while securing loans.
A report by the Credit Bureau Cambodia (CBC), the King- dom’s only independent credit monitoring agency, showed that of the over $3 billion in outstanding loans as of the end of September, 71 percent of borrowers had multiple outstanding loan accounts, with nearly 20 percent spread across numerous lending institutions. Over 85 percent of these outstanding loans were designated as for personal finance – often to purchase the very same moveable assets that consumers would hope to put down as collateral when applying for additional credit.
Say Sony, senior vice president of Prasac Microfinance, Cambodia’s largest MFI in terms of assets, said that to adopt moveable assets as collateral would be a difficult task seeing the high degree in which Cambodia’s grey market operates, where moveable assets can quickly go missing or sold without proper documentation.
“If we use moveable assets as collateral, we cannot take things like cars, motorbikes or other belongings from borrowers in place of land or property, because these items can be quickly sold to dealers or pawn shops,” he explained. “We take land ownership titles because in many cases borrowers can sell their assets in the grey market at a cheaper price without a legal ownership title.”
However, Bun Mony, CEO of Sathapana Bank, said financial institutions have been trying to incorporate moveable assets into their collateral portfolio because it would provide more opportunities for borrowers to take out loans.
“It is always good if we are able to accept a moveable asset as collateral,” he said. “But we need to make sure that our system to control moveable assets is transparent, otherwise it will be difficult to do that.” KOREAN Air, the flag carrier of South Korea, will suspend its scheduled service from Incheon to Siem Reap amid increased competition on the route, a government aviation official said yesterday.
Sinn Chanserey Vutha, spokesman of the State Secretariat for Civil Aviation (SSCA), said the airline informed his agency several months ago of its intention to suspend service “because they could not make a profit on the route”.
In a press release issued late last week, Korean Air announced that it would cease to operate flights on the Incheon-Siem Reap route starting in early February 2017 “due to low demand and to increase profitability”. It added that the airline would focus more on in-demand routes to maximise profitability and ensure sustainability.
Provincial tourism figures show a marginal increase in South Korean visitors to Siem Reap, with total visits growing 1.24 percent year-on-year during the first nine months through the end of September.
Vutha said he suspects the airline’s decision to drop the route was not due to a decline in overall passenger traffic on the route, but rather the result of increased competition with other airlines also operating services.
“It’s suspending service due to commercial reasons as there are a lot of airlines [on this route,] which cuts into their market share,” he said.
Five carriers currently operate service from Seoul Incheon Airport, the primary airport serving Seoul, to Siem Reap. These include two full-service carriers – Korean Air and Cambodia Angkor Air – and three low-cost carriers (LCCs) – Air Seoul, Air Busan and Eastar Jet.
Vutha said Korean Air could look to operate its own LCC on the route, which would be more competitive than its fullservice airline.
Jin Air, a subsidiary of Korean Air founded in 2008, operates flights to five domestic cities and 22 international destinations. An interline agreement signed with Cambodia Angkor Air in June could see the airline add Siem Reap to its regular schedule. It previously operated charter flights to the Cambodian city on a seasonal basis.
Meanwhile, Asiana Airlines, a competitor of Korean Air, announced last month that it was handing over flight operations on its Incheon-Siem Reap route to its budget carrier subsidiary Air Seoul.