MFI investment

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Re: MFI investment

Post by davegorman » Wed May 08, 2019 4:47 pm

armchairlawyer wrote:
Sat May 04, 2019 1:40 pm
AFAIK, three deposit-taking institutions in Cambodia have been rated by credit rating agencies. Acleda and ABA have been rated B+ and B respectively by Standard and Poors. Hatha Kaksekar has been rated BBB+ by Tris.

This article is worth reading, ... oderating/
The same Standard and Poor who gave Lehman Brothers an A rating?
Yeah. Great.
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Re: MFI investment

Post by logos » Wed May 08, 2019 6:05 pm

Thanks Spigz, quite an interesting document.
As long as the MDI/MFI portfolios remain in the non real estate/building sectors as it has been historically, they look safer than banks to me.
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Re: MFI investment

Post by armchairlawyer » Sat May 11, 2019 1:45 pm

Spigzy wrote:
Wed May 08, 2019 3:38 pm
MFIs have a roller coaster NPL chart versus steadier lending by MDIs & the banks in country. Stick to the big boys.

NBC financial stability review here: ... pr2019.pdf

The NBC annual report usually contains the relevant figures on each bank, MDI & MFI to give you more confidence.
I couldn't see anything on specific banks in the linked document, although there is plenty on the three categories.
Banks and MDIs seem to be rather late in publishing their 2018 accounts. When do they normally appear?
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Re: MFI investment

Post by Spigzy » Sat May 11, 2019 10:22 pm

Last year or two they come out end of May, but can be published as late as August from my observation. It is also the NBC annual report that contains individual balance sheets, P&Ls, stats, etc, different to the one I linked sorry; as pointed out 2018 report not published yet.
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Re: MFI investment

Post by armchairlawyer » Sat Jun 01, 2019 5:05 pm

Spigzy wrote:
Wed May 08, 2019 3:38 pm
MFIs have a roller coaster NPL chart versus steadier lending by MDIs & the banks in country. Stick to the big boys.

NBC financial stability review here: ... pr2019.pdf
I went through the NBC Annual Stability Review 2018 document (linked by Spigzy above) in order to judge how safe it is to have money on deposit in Cambodia, and which would be preferable - banks or MDIs. Note MFIs cannot accept deposits so are not relevant to this discussion. The main MDIs are Hatha, Prasac, Amret etc. The main risk factors in the NBC's view are Chinese retrenchment of FDI and a real estate downturn. These are my notes:
Main takeaways (with some of my thoughts added):
(Note the data used by the NBC may be unreliable). All data comparisons are 2018 compared to 2017.
Cambodia as a nation:
GDP growth 6.8% (falling slightly)
Inflation 2,5% (rising)
Export growth 17%. Total exports 11.42bn USD
Trade balance is in deficit, at 17% of GDP
Their biggest export by far is garments, with obvious risks from EBA withdrawal and power cuts, EU is their biggest market. Loss of EBA is estimated to cause a loss of 320 to 380 million USD value of exports.
Tourist growth is 8% but down from 15% - and 35% of tourists come from China. And China, Vietnam, Lao and Thailand together makes up 62% of arrivals. Consider the impact of zero dollar tours on tourist revenues. Also wonder how they calculate tourist numbers, if a Chinese worker works without a WP, would he be counted as a tourist?
The largest Western tourist nation was USA at 4% of arrivals.

Remittances (presumably from Khmers working abroad) grew at 11%, mostly from Thailand. Agriculture was flat. AFAICT, remittances came to 0.4bn and tourist revenues came to 4bn USD.

Budget deficit was 1% of GDP
Government revenues grew 18%
These figures would be fine were it not for:
Currency mismatch caused by more government revenues in Riel compared to expenses, mostly payments to external creditors, in USD.

FDI finances the current account deficit. Most goes into finance, ie lending within Cambodia (probably mostly to banks and real estate companies). Flows are declining. 41% comes from China.
The government borrowed 53% of the gross external debt and 49% of that was from China.
Gross FX reserves at NBC are 10 billion USD. Good ratios to imports and to broad money but need to be much higher than normal due to high USD denomination of deposits. FX reserves only cover 55% of USD deposits.
Obvious concerns over effect of withdrawal of FDI from China. How would Cambodian banks finance their lending?
Bank loans to construction and real estate grew by 35% and form 17% of total loans.

Real estate:
Condo stock grew by 57%
Retail grew by 39%
A further surge in condos offices and retail space is expected in late 2019 with bad effects on rentals and sale prices

Banks and MDIs (no account of MFIs because they do not take deposits):
MDI assets have increased but banks still total 83% of the market
MDI lending is mostly to households and then manufacturing and trading, very little real estate related.
Bank lending is 28% real estate related

MDIs have better returns on equity and on assets than the banks. Their capital adequacy ratio is less good than the banks, 16% to 24%
Banks have a higher rate of deposits., At 80% compared to 57% for MDIs. MDI loan to deposit ratio is an eye-watering 162%, but is declining (NBC gave no equivalent for banks but will be lower). MDIs therefore borrow more in the wholesale market but that is mostly from abroad, main source is Luxembourg (presumably NGO source). Most of the domestic borrowing is from Chinese banks (in Cambodia). Not sure who lends to banks, I'm guessing Chinese banks mainly.

Bank NPL rates are 5%, MDIs are 1%
Bank NPL rates on real estate lending reached 12% in 2016 but now down, the worst sector for banks is now agriculture at 7%

Most of the household credit is for income generating activities, biggest sector being retail trade.

The NBC expresses concerns over the rates of real estate growth and the likelihood of a fall in prices. It is also concerned about the effect of a retrenchment of activity by China on the whole economy and especially on the real estate sector.

Comparing banks to MDIs:
Bank analysts list these major issues:
Debt/equity ratios - banks win
Loan deposit ratios - banks win
The stickiness of deposits - equal
The extent of lending to commercial real estate - MDIs win
The level of NPLs - MDIs win

I would add the issue of mortgage lending, given the terrible UK experience on this. The NBC is relaxed about this due to (normally) max 70% LTV but values tend to get inflated and when prices fall, it all goes badly wrong. - MDIs win

Profitability - MDIs win

The NBC's issue of China retrenchment - MDIs win

Remember there is zero deposit protection by the government, not that such protection is always provided in a crisis, eg Iceland in 2008.
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