Logo of Phnom Penh Post newspaper Phnom Penh Post - Solid year to carry forward: NBC

Solid year to carry forward: NBC

A street view of the National Bank of Cambodia headquarters in Phnom Penh.
A street view of the National Bank of Cambodia headquarters in Phnom Penh. Heng Chivoan

Solid year to carry forward: NBC

The National Bank of Cambodia (NBC) released its review of 2016 and outlook for 2017 this week, highlighting the continued large growth of the banking sector while warning that the Kingdom was still vulnerable to external economic factors.

Cambodia achieved its anticipated 7 percent GDP growth on the continued good performance of its garment, tourism and construction and real estate sectors, the NBC said in the report. Foreign direct investment (FDI) continued to flow into the country, reaching 10.7 percent of GDP, it added.

“Inflation remained low at around 2.9 percent . . . as a result of the rising domestic demand in line with the improvement of living standard,” the report said.

The banking sector experienced strong healthy growth in 2016, though at a cooler pace than in recent years. Bank assets grew by 17.4 percent, reaching $27.8 billion, while deposits grew by 20.7 percent, to $15.4 billion. Meanwhile, credit increased by 18.3 percent to $17.6 billion, with the ratio of non-performing loans finishing the year at 3.5 percent for banks and 1 percent for microfinance institutions.

“In 2016, the National Bank of Cambodia strengthened its regulation on Liquidity Coverage Ratio in line with Basel III principles,” the report noted. “These conditions have urged banks and microfinance institutions to diversify their sources of income beyond interest income in order to ensure the sustainability of their businesses.”

The level of dollarisation in the economy remains high with the NBC reporting that the ratio of foreign currency deposits to riel and other liquid assets was at 83 percent, seriously reducing the effectiveness the of country’s monetary policy.

In response, the NBC said it was taking proactive steps to promote the use of riel, such as public awareness campaigns on the importance of local currency use, reducing transaction costs on riel payments, developing new riel liquidity provisions and gradually requiring financial institutions to provide more loans in riel.

Independent economist Teng Delux, said the dollarisation of Cambodia’s economy could prove increasingly problematic as the US Federal Reserve pushes through its planned interest rate increases.

“Increased interest rates by the US will affect people’s ability to borrow money from banks, especially because in Cambodia 90 percent of transactions are made in dollars,” he said.

Delux added that local consumption using riel needed to be encouraged to counteract the large amounts of dollars brought to Cambodia through FDI.

“It is a problem for the government, which holds a large amount of its debt in US dollars,” he said. “Cambodia’s comparative advantage for exports could also decrease with higher exchange rates because it relies much more on dollars than other similar exporting countries like Vietnam or Sri Lanka, who use and control their own currency.”

The NBC report warned that the Kingdom’s economy was still vulnerable to external downside risks, particularly related to US monetary policy and decreased global trade. On the other hand, the country’s integration into the ASEAN Economic Community and the trade benefits from China’s One Belt, One Road initiative were positive signs for continued GPD growth, alongside existing tax exemptions for exports to the EU and US.

Looking forward, the NBC projects Cambodia will continue on a path of 7 percent GDP growth over the next year, aided by a resurgence in the agricultural and tourism sectors.

“Since Cambodia is a small and open economy, which is highly integrated into the region and the world, its economy will benefit from the recovery of the global economy and robustness of economic growth in the region amid increasing exposure to external risks,” it said.

Inflation was expected to increase to around 3 percent, partly due to projected increase in oil prices. Other factors such as a higher minimum wage and slower growth in the real estate and construction sectors could have a negative impact on the next year’s results, it said.

MOST VIEWED

  • Phnom Penh placed in two-week lockdown

    The government has decided to place Phnom Penh in lockdown for two weeks, effective April 14 midnight through April 28, as Cambodia continues to grapple with the ongoing community outbreak of Covid-19, which has seen no sign of subsiding. According to a directive signed by Prime Minister

  • Cambodia on the verge of national tragedy, WHO warns

    The World Health Organisation (WHO) in Cambodia warned that the country had reached another critical point amid a sudden, huge surge in community transmission cases and deaths. “We stand on the brink of a national tragedy because of Covid-19. Despite our best efforts, we are

  • Hun Sen: Stay where you are, or else

    Prime Minister Hun Sen warned that the two-week lockdown of Phnom Penh and adjacent Kandal provincial town Takmao could be extended if people are not cooperative by staying home. “Now let me make this clear: stay in your home, village, and district and remain where

  • Businesses in capital told to get travel permit amid lockdown through One Window Service

    The Phnom Penh Municipal Administration has issued guidelines on how to get travel permission for priority groups during the lockdown of Phnom Penh, directing private institutions to apply through the municipality's One Window Service and limit their staff to a mere two per cent. In

  • Vaccination open to foreigners in Cambodia

    The Ministry of Health on April 8 issued an announcement on Covid-19 vaccination for foreigners residing and working in Cambodia, directing the Ministry of Labour and Vocational Training and local authorities to register them. Health minister Mam Bun Heng, who is also head of the inter-ministerial

  • Ministry names types of business permitted amid lockdown

    The Ministry of Labour and Vocational Training singled out 11 types of business that are permitted to operate during the lockdown of Phnom Penh and Takmao town, which run through April 28. Those include (1) food-processing enterprises and slaughterhouses; (2) providers of public services such as firefighting, utility and