Client Alert: Loan restructuring during the COVID-19 crisis

In response to the current economic situation caused by the COVID-19 pandemic, and to relieve the burden on borrowers facing financial hardship, the National Bank of Cambodia (“NBC”) has issued Circular No. T7.020.001 directing banking and financial institutions (including microfinance institutions) in Cambodia (“Institutions”) to be flexible with regard to debt repayment by offering loan restructuring for customers in four priority sectors: (1) tourism (hotels, guesthouses, restaurants, as well as food and beverage, and other supporting services); (2) garment manufacturing (including for employees); (3) construction (only for loans for first-time home and shop construction, and first-time home purchases); and (4) transportation (particularly for taxi drivers and tuk-tuk drivers) and logistics. The Circular appears not to apply to loans for other sectors, such as real estate (other than the construction mentioned above), consulting firms, agriculture, energy, telecommunications, etc.

The NBC Circular specified a number of measures that Institutions must consider in their loan restructuring:

1. Reduction of the principal amount or the amount to be paid at maturity
2. Reduction of the interest rate to a rate lower than in the original loan agreement
3. Extension of time for the loan principal or interest repayment, or interest capitalization
4. Extension of maturity
5. Addition of and/or change of joint borrower or guarantor (if any)
6. Change in loan type from an installment loan to a bullet loan
7. Waiver of or reduction of collateral requirement
8. Reduction of contract conditions
9. Provision of a grace period, which could last for six months counting from the effective date of the new contract

According to the Circular, the loan restructuring applies to performing loans (those that are not past due more than 90 days) and non-performing loans for customers whose financial difficulties are expected to be temporary only, and is valid until 31 December 2020. In all cases, the loan classifications for non-performing loans remain the same.

The NBC also requires Institutions to have a concrete loan restructuring policy adopted by their board of directors to implement to blunt the economic impact during the COVID-19 pandemic.

Institutions must submit a monthly report (or as required) to the NBC regarding the restructured loan portfolio. The loan restructuring report must include, among other things: the type of loan; loan purpose; loan amount; loan classification; loan restructuring date; and current status of the restructured loan.

Notice of Casino Closing

On 30 March 2020, the Ministry of Economy and Finance (“MEF”) issued Notice No. 007 announcing the temporary closure of all casinos in the Kingdom of Cambodia to minimize the spread of COVID-19 effective from 1 April 2020 until further notice. In consideration of the temporary closure, the MEF will provide casinos with monthly tax relief from 1 April 2020 onward until they are permitted to reopen. The MEF will take action in accordance with the law in force against any casinos that fail to comply with this Notice.

If you have questions about this alert, please contact your usual VDB Loi adviser.

VDB Loi is a network of leading law and tax advisory firms with offices in Cambodia, Indonesia, Laos, Myanmar and Vietnam. We provide the highest quality solutions for transactions and taxation. Our general areas of practice are corporate, finance, licensing and disputes. Our principal specialized areas of practice are energy, infrastructure, real estate and construction, telecom, and taxation.

You can find more information on our Cambodia office here.