NBC asks banks, MFIs to delay dividend payouts

THE National Bank of Cambodia (NBC) called for all banks and microfinance institutions (MFI) to postpone dividend payouts to shareholders for 2020 in a move to safeguard the growth, stability and certainty of the sector against economic disruptions caused by the Covid-19 pandemic.

In an announcement addressed to the heads of Cambodia’s financial institutions and seen by The Post on February 19, the NBC suggested that they “suspend dividend payouts from profit after audit and prepare an appropriate ‘exit strategy’ for when the various [relief] measures come to an end”.

The central bank reassured the Kingdom’s financial leaders by reiterating that it had “issued many measures to improve compliance of rules and regulations in a manner consistent with government policy”.

“The banking sector remains strong and continues to turn a profit even in this current economic climate,” it said.

Advanced Bank of Asia Ltd (ABA Bank) chief marketing officer Igor Zimarev told The Post on February 19 that the more detailed specifics of the newest measure had not been made officially available.

“We [ABA Bank] don’t pay out dividends to shareholders. Strategically, this decision was made to divert the bank’s earnings into [financial working] capital, supporting the growth of its deposit and loan portfolios, which, in turn, positively impacts our customers and local economy.

“Based on our strategy, we currently don’t have plans to pay out dividends to shareholders,” he said.

The Uzbek financial veteran pointed out that ABA Bank had covered all bases in its “exit strategy” as recommended by the NBC.

“We at ABA Bank are well-prepared for the development of the situation in the market and will follow the exit scenarios introduced by the regulator,” Zimarev said.

In Channy, president and group managing director of ACLEDA Bank Plc, declined to comment on the NBC’s notice, but claimed ACLEDA had cooked up a canny strategy to maintain growth.

Cambodia Microfinance Association head Kaing Tongngy was also tight-lipped about the NBC statement at the weekend, but said he was keen on posting an update when more information on the call becomes available.

In March last year, the NBC issued a raft of measures to ensure liquidity and promote lending amid Covid-19.

The central bank delayed the conservation capital buffer (CCB) requirement to 2021, a move it expected would lower the solvency ratio.

NBC also reduced the interest rate on the liquidity-providing collateralised operation (LPCO), a financial tool that allows the central bank to lend to financial institutions in the local currency.

The interest rate of LPCOs was cut to 2.5 per cent a year (from three per cent); 2.3 per cent for six months (from 2.8 per cent), and 2.1 per cent for three months (from 2.6 per cent).

The interest rate on negotiated certificate deposits (NCD) – tools that allow the financial sector to deposit with the central bank to earn interest – was also reduced.

NBC also said it would “reduce the liquidity coverage ratio [LCR] to an appropriate level as is necessary”. LCR is the ratio of highly-liquid assets held by financial institutions and serves as a gauge for their ability to meet short-term obligations.

The central bank announced earlier this month that it would keep the current seven per cent reserve requirement ratio (RRR) until June 30 to ensure liquidity in the sector to fund more loans and to crank up economic activity.

RRRs are central bank regulations that set a minimum amount of cash that financial institutions must hold in reserve. The Cambodian RRRs in foreign and domestic currency were 12.5 per cent and eight per cent, respectively, until the NBC reduced both to seven per cent – effective from April last year.

Total assets in the Kingdom’s banks and MFIs grew to $59.4 billion at the end of last year, increasing 15.7 per cent from the end of 2019, according to the NBC’s 2020 annual report.

Outstanding loans in banks and MFIs grew by 14.8 per cent to $37.3 billion by the end of last year, while deposits increased by 15.4 per cent to $33.8 billion.