Lending growth in Cambodia has slowed to a record low of 2.6%, the lowest level in the last 20 years. However, the country’s overall economic expansion in the first six months of the year stood high at 6.3%, according to Chea Serey, governor of the National Bank of Cambodia (NBC).

Speaking today at the meeting to review the results of the first half of 2024, Serey said that the decline in lending was due to caution by banking and financial institutions (FIs) amidst global economic uncertainty fueled by wars in Europe and the Middle East and geopolitical issues.

"Global and regional economic uncertainty has prompted FIs and banking institutions to be more vigilant and cautious in lending amid a slow recovery in some sectors. This has caused credit growth to continue slowing to … the lowest level in two decades,” she said.

At the same time, she noted, the non-performing loan (NPL) ratio has been steadily increasing, reaching 6.8% in the banking sector and 8.3% in the microfinance sector.

However, the country’s economy is forecast to reach 6% for the entirety of 2024, which is 1% higher than the previous year, she said.

Serey highlighted that the growth was supported by key sectors such as the garment sector, which saw a 17.2% increase, tourism with a 21.2% uptick and the agriculture sector which rose by 47.8%.

She said the construction and real estate sectors – pillars supporting the Cambodian economy – were also affected by external factors, resulting in growth rates of only 1.4% and 0.8%, respectively.

According to Serey, a positive achievement for the country has been maintaining the inflation rate as low as 0.4% in the first six months of this year. She said the lower rate was also due to decreased prices of some commodities, fuel and related services. In addition, the exchange rate has remained stable at 4,075 riel per dollar, an increase of only 0.4% over the previous year.

"Keeping the exchange rate [increase] to below 1% is a success for Cambodia compared to some currencies in the region. This stability is due to the prudent monetary policy we have," she said.

In addition, Serey noted the country has strengthened the confidence of investors and the public in its economic stability through high foreign exchange reserves, which are as high as $20 billion.

Regarding the decline in both credit and lending, Hong Vanak, an economic researcher at the Royal Academy of Cambodia, stated that it reflects the real situation because borrowers face difficulties and lenders, such as banks or microfinance institutions (MFIs), must carefully consider the qualifications of the borrower.

He noted that late repayments to FIs, both banks and microfinance, are high, which has affected these institutions.

“It’s simply the reality. The Covid-19 pandemic, followed by the wars in Ukraine and the Middle East, has impacted the economy, especially traders and individuals, and it has affected the income of many people, causing issues with their existing credit.

“Therefore, lenders must first check the specific conditions and income status of borrowers. Secondly, those who are already in debt are hesitant to borrow more because their old loans are not paid off. Those who do not have old debts are also reluctant to borrow because they cannot afford to repay,” he said.

Vanak explained that the decline in credit and lending also reflects the actual economic situation of the people, as they can only earn enough to meet their daily consumption and pay their old debts.

He said lending growth could increase as other industries expand, since the banking sector relies on momentum from these areas.