Next year’s national election is unlikely to slow the rapid pace of bank lending growth but could put a temporary crimp in deposits, though the sector is expected to have sufficient liquidity to absorb the impact, according to a report released yesterday.
Reflecting on Cambodia’s last general election in 2013, investment firm Mekong Strategic Partners (MSP) projected that the impact of the upcoming 2018 election on the banking sector would be minimal.
“Lending volumes for both MFIs and banks are unlikely to see a significant impact from the election, but may moderate slightly,” it said in a banking sector performance review. “Deposits will be impacted, however we expect the banks will be holding additional liquidity in the lead up to help absorb this.”
The report noted that the central bank’s move to raise minimum capital levels at all banks and MFIs by March 2018 would help ensure that financial institutions have a stronger capital base ahead of the election, which is scheduled for July 2018.
According to MSP, bank loans and deposits fell during the months surrounding the 2013 national election though quickly recovered.
It noted that while bank loans grew 23 percent during 2013, there was a sharp decline in July immediately preceding the polling. Bank deposits, meanwhile, experienced sudden outflows during the election period, ending the year at 12 percent growth.
“In the first six months of the year, bank deposits were up 10 percent, and were on track to exceed 20 percent for the year,” it said. “However, in July and August, balances fell 10 percent, back to where they were at the start of the year before recovering by December.”
The report said MFI lending growth remained strong in 2013, finishing the year up 48 percent, but anecdotal evidence suggests microfinance deposit-taking institutions saw an outflow of deposits during the election period.