According to the National Bank of Cambodia (NBC), as of December 2023, the country had 58 commercial banks, nine specialised banks and 87 microfinance institutions (MFIs). Heng Chivoan
Despite the sluggish global economy in recent years, due to the Covid-19 pandemic, the ongoing Russia-Ukraine war and rising geopolitical competition among superpowers, Cambodia’s banking system achieved less than 5% credit growth in 2023, marking its lowest in two decades.
According to the National Bank of Cambodia (NBC), as of December 2023, the country had 58 commercial banks, nine specialised banks and 87 microfinance institutions (MFIs).
Total credit growth reached $57.6 billion in 2023, marking an increase of 4.8% from the previous year.
The report detailed loan distribution across various sectors: the hotel and restaurant sector experienced a marginal rise of 0.6%, wholesale increased by 4.8%, home purchases by 6.4%, real estate by 16.9% and construction by 13.9%.
Non-performing loan (NPL) rates in the banking and microfinance sectors were 5.4% and 6.7%, respectively.
There was an increase in outstanding deposits in 2023, which rose by 13.1% to $47.9 billion.
Current assets in the banking system escalated to $84.3 billion, a year-on-year increase of 8.6%.
Chea Serey, governor of NBC, said at the close of the bank’s annual meeting in late January that NPLs had risen slightly over the last two years due to the spread of Covid-19 and amid the deceleration in loan growth.
“In fact, while the NPL situation is manageable, the increase in NPLs leads to a decrease in profit. This makes it challenging to accelerate loan growth in support of economic activities,” she stated.
Serey noted that the pandemic has also contributed to the rise in private sector debt, particularly household debt, but maintained that it remains sustainable.
“At this point, I would like to emphasise that a non-profit organisation [NPO] previously reported that most borrowers have fallen into over-indebtedness – with more than 70% of their income going towards loan repayment.
“However, their report had significant gaps in information, particularly as the NPO only considered 717 households in Kampong Speu province and their questionnaires did not offer sufficient options to the respondents,” she added.
Anthony Galliano, group CEO of Cambodian Investment Management Holding, explained that the slowing credit growth was due to a combination of factors related to the global economy, Cambodia being dollarised and domestic banking influences.
He said Cambodia remains substantially tied to the dollar, which has supported the strength of the riel. However, he noted that inflation in the country also reflects price trends in the US and added that with the rate hovering around 3%, consumers have less discretionary income, leading to reduced spending.
Galliano stressed that the decrease affects the likelihood of large purchases, such as real estate and cars, which typically require credit.
“The rise in interest rates over the last two years has coincided with a slowing of deposit growth. Cambodia’s banking market is highly competitive, partly because there are so many banks and other financial institutions relative to the size of the economy,” he said.
“The combination of a highly competitive market for deposits, a decrease in deposit growth, and higher US interest rates has led to increased costs for banks. This, in turn, results in higher interest rates for borrowers, reducing credit demand. Combined with slower deposit growth, these factors have tightened liquidity and slowed the growth of the broad money supply [M2],” he added.
Galliano noted that the US Federal Reserve (Fed) increased US interest rates 11 times between March 2022 and July 2023. He said that with no additional increases since then, the expectation is that rates will decrease if inflation remains under control.
“This will hopefully lead to a softening of credit, a welcome boost for the economy,” he added.
Robust growth in Cambodian banking
Toch Chaochek, CEO of Cambodia Post Bank Plc, reported that the institution performed well in 2023.
“Last year, our performance was exceptional relative to the industry as a whole. For example, our total assets grew by over 14%, our outstanding loans rose by more than 8% and our deposits increased by 15%,” he said.
Chaochek explained that the majority of loans were disbursed across various sectors: approximately 38% in retail trade, around 24% in housing, about 11% in transportation, roughly 8% for personal use, close to 5% in construction and real estate, and around 5% in agriculture.
“This year, we are more optimistic than in 2023 and we also hope to achieve much better growth than last year,” he emphasised.
Khim Samborothana, public relations manager at the Advanced Bank of Asia Ltd (ABA Bank), said the institution’s total assets reached $11.3 billion at the end of December 2023, up from $9 billion year-on-year.
He said the bank’s outstanding loans increased to $7.7 billion in 2023, from $6.5 billion the previous year, while deposits reached $9 billion, up from $7.4 billion in 2022.
“ABA Bank has consistently aimed to support customers from all sectors, from small business loans to commercial and corporate loans. We have dedicated teams to oversee and manage each segment with prudence. The main contribution to our growth comes from micro, small and medium enterprises [MSMEs], which we believe to be the backbone of the Cambodian economy,” he said.
“The criteria and policy for credit assessment are always maintained by our teams. During challenging times, we are even more vigilant in granting loans to customers, while simultaneously offering very suitable credit solutions to help the economy.
“We provide loans to new customers for business expansion and diversification and also offer favourable refinancing terms, especially competitive interest rates. All these factors help us grow our loan book,” he added.
Samborothana explained that the bank has not imposed any restrictions or mechanisms regarding loan proposals during these difficult times. He said the bank’s NPL rate remains impressively low at under 4%, demonstrating its responsible lending practices and effective risk management strategies.
On January 31, the International Monetary Fund (IMF) and the central bank projected the Kingdom’s economic growth for 2024 at 6.1% and 6.4% respectively, fuelled by recovery in the tourism and manufacturing sectors, while inflation is expected to be at 3% and 2.5% respectively.
