The Ukraine conflict, international financial tightening, elevated interest rates, and China’s ongoing real estate woes may have some impact on the stability of Cambodia’s financial system, requiring stakeholders to work together to minimise potential risks to the economy, according to National Bank of Cambodia (NBC) deputy governor Chea Serey.
Speaking at a July 6 seminar on the occasion of the launch of the Financial Stability Report 2022 (FSR 2022), Serey claimed that Cambodia has emerged as a leader in the monitoring of financial stability following the 2007-2008 global financial crisis.
She stressed that maintaining financial stability is crucial to fostering sustainable economic growth, and explained that losing it runs the risk of substantial negative economic shocks, as the world has already seen.
Such consequences include hindering financing that may boost economic growth, lowering purchasing power due to rising inflationary pressures, impeding payments and disrupting economic flow, and eroding public confidence in the financial system, she said.
All of these effects can result in a quick outflow of money and depreciation of the national currency, which may undermine its support and usage, she added.
“The ongoing Ukraine conflict and the tightening of global financial conditions have had an impact on export prospects and capital inflows to Cambodia, and the lengthy real estate crisis in China may impede investment from that country.
“Falling credit growth and higher borrowing costs brought on by heightened interest rates across the globe may also diminish domestic investment.
“Overall, due to the openness of the Cambodian economy and its strong reliance on external resources, the majority of risks to its financial stability stems from outside sources,” Serey said.
Serey advised careful scrutiny of the Cambodian real estate sector, which she identified as a material source of risk to financial stability, and highlighted a slump in demand for properties following a decade-long growth boom.
“Maintaining financial stability is an inter-sectoral task that requires the cooperation and coordination of the authorities and stakeholders, as the financial system is closely intertwined with … the physical economy,” she emphasised.
Cambodia Post Bank Plc (CPBank) CEO Toch Chaochek commented to The Post that the Kingdom’s financial sector is running smoothly despite external pressures, but conceded that loan growth has slowed as a result of rising interest rates in recent months.
“Loans and deposits remain on an uptrend, and this indicates that the banking and financial sector as a whole is still moving forward,” he said. “However, the recent rise in interest rates has led to slower loan growth because of diminished demand.”
A press release issued in conjunction with the seminar noted that the banking sector accounts for 85 per cent of total financial system assets, citing the FSR 2022.
However, the release said, the overall non-performing loan (NPL) rate has risen to 2.9 per cent from 2.1 per cent as of the final major easing of Covid-19-related restrictions, which it noted is still at manageable levels.
Financial institutions are generally able to uphold high levels of liquidity and capital, effectively manage risk and satisfy the cash needs of their clients, it added.