CAMBODIA'S central bank has warned that the property market downturn could increase nonperforming loans (NPLs).

The National Bank of Cambodia (NBC) said its latest supervision report showed NPLs rising from US$58 million in June 2008 to almost $88 million by the year-end. That was 3.68 percent of banks' loan portfolios, which stood at close to $2.4 billion at the end of 2008.

NBC Deputy Governor Neav Chantana told the Banking Cambodia conference last week that real estate lending of $161 million amounted to seven percent of total lending.

"Nonetheless, the recent tranquillity in the real estate market may deteriorate the quality of the assets of commercial banks, and that situation could increase the risk of high nonperforming loans in the future," she warned.

NBC figures show that a further seven percent of banks' loan books were tied to individuals purchasing property for their own use. Another eight percent went to the construction sector.

"It is hard to believe that NPL is less than five percent - it was only 3.68 percent in 2008," Neav Chantana told attendees. "It means the financial system is strong and performing very well."

In its recent country report, the International Monetary Fund (IMF) said under-reporting by some banks of their true exposure to NPLs - in sectors including property - meant "the picture could be misleading".

Hang Chuon Naron, secretary general at the Ministry of Economy and Finance, predicted the real estate sector "will take at least three to five years to see a recovery".

In Channy, president of ACLEDA Bank, said he was untroubled by real estate NPLs, adding that property lending made up nine percent of its loans.