Cambodia’s central bank released a prakas earlier this week which aims to increase the calibre of credit risk grading practised by the Kingdom’s financial institutions to ensure the financial sector protects itself from threats and remains sustainable.

The prakas, which consists of 14 chapters and 91 articles, details the roles that financial institutions and their management must fulfill in order to build a strong system for managing credit risk while addressing potential economic threats.

Credit risk is heightened by increased numbers of borrowers who fail to meet the repayment obligations on their loans, and is measured by non-performing loan rates.

Cambodia currently has a considerable number of non-performing loans, according to data from the Cambodia Microfinance Association (CMA), with the Kingdom’s portfolio at risk (PAR) amounting to $76 million by the end of September, equal to 1.9 percent of the sector’s outstanding loan portfolio.

This represents an increase in non-performing loans since last year, when PAR was valued at $39 million, or 1.38 percent of the sector’s outstanding loans.

Chea Serey, director-general of the National Bank of Cambodia (NBC), said that Cambodia’s financial sector has been developing very quickly, and that this rapid progress has made it necessary to create a manual for organisations to more fully embrace credit risk grading in the Kingdom.

“This prakas details criteria for credit risk grading, and the requirements it outlines meet international standards,” she said. “As our financial sector has developed, we have encountered more threats to our institutions, so this prakas is designed to allow us to better manage the risks our sector is facing as well as the risks it will face in the near future.”