The National Bank of Cambodia (NBC). Heng Chivoan
The banking system has demonstrated its robustness through high levels of liquidity and capital, and will remain sound and resilient while playing a crucial role in supporting economic activities, despite recent global turbulence, according to the National Bank of Cambodia (NBC).
In a recent statement, NBC deputy governor Chea Serey said the economy has been stimulated by the constant allocation of credit to a variety of sectors, and that loan restructuring has aided many struggling households and businesses by relieving their financial burdens.
She said the central bank has begun to implement an “exit strategy” to ensure the stability and soundness of the banking system in accordance with the speed of Cambodia’s economic recovery.
“The banking system will continue to support economic development by providing credit and other financial services while further modernising the payment system in line with market demand,” Serey said.
However, she warned that the banking system is exposed to a number of vulnerabilities.
For instance, the tightening of international financial conditions may increase the cost of capital for banks and other financial institutions, pushing up domestic interest rates.
Additionally, a slowdown in economic activity brought on by the aforementioned external risk factor could impact company and household incomes and hinder their ability to pay off debt.
Thirdly, borrowers with significant levels of leverage may be at risk if the real estate market experiences a sharp downturn given the sizeable share of loans going to the construction and real estate industries.
“The NBC will continue to closely monitor economic and financial conditions as well as any potential threats to financial stability and take proactive measures to mitigate risks and safeguard the robustness and resilience of the banking system,” Serey added.
For reference, as defined by the NBC in its 2022 annual report, Cambodia’s formal “banking system” – at the time – comprised 59 commercial banks; nine specialised banks; five deposit-taking and 82 non-deposit-taking microfinance institutions (MFI); 224 rural credit institutions; and 16 financial leasing companies.
There were also five third-party processors; 34 payment service providers; one credit information sharing service provider; six foreign bank representative offices; and 2,869 money exchange businesses.
Speaking to The Post, Cambodia Post Bank Plc (CPBank) CEO Toch Chaochek reflected on the key role that financial institutions have played in the past few years since Covid-19 emerged, commenting that the Ukraine conflict has eroded people’s earnings across the globe while driving up the price of commodities.
The NBC has also stepped in and implemented a number of prudential measures to protect the financial system from external threats and to help businesses and households, he said.
“As one can see, our financial sector remains a key source of capital to increase economic activity, despite the many external factors harming the regional and global economies, and people’s incomes in particular,” Chaochek added.
The NBC’s Serey also pointed out that some risk may also be attributable to “shadow banking” institutions outside the central bank’s purview, which she suggested may include real estate developers and pawn shops.
She admitted that little information is readily available about these institutions’ operations or financial performance, or their clients’ debt-paying capacity.
“Therefore, concerted efforts by the concerned regulatory authorities are needed to strengthen the data collection and improve the regulatory oversight regarding these institutions in order to proactively constrain any risks from them to the broader financial system.
“On its side, the NBC will continue to further strengthen its collaboration with relevant authorities to ensure the soundness of the overall financial system in Cambodia,” she pledged.
In its Financial Stability Review 2022, the central bank reported that the 59 commercial banks had combined total assets of 270 trillion riel, or $65.7 billion, as of end-2022 – compared to the 241.8 trillion riel posted a year earlier.
This sum, it said, accounted for approximately 84.5 per cent of the domestic banking system’s 317 trillion riel of total assets – which rose by 12.6 per cent from the 281.5 trillion riel registered at end-2021.
“In 2022, growth in assets, loans and deposits [of the banking system] decelerated to 12.6, 16.3 and 9.5 per cent respectively.
“The NPLR [non-performing loan ratio] inched up 1.8 per cent in 2021 to 2.9 per cent in 2022 … [remaining] moderate, suggesting that banks have weathered the pandemic-induced crisis without a major impact on their asset quality.
“The overall LCR [liquidity coverage ratio] of commercial banks, while declining in the last two years, stood at 143.8 per cent in 2022, far above the NBC’s required benchmark (100 per cent), indicating healthy liquidity levels to face any short-term liquidity stress,” it said.
