Credit growth needs to moderate in Cambodia

Content image - Phnom Penh Post
The National Bank of Cambodia, pictured above, has recently raised the minimum capital requirements to ensure financial stability. Heng Chivoan

Credit growth needs to moderate in Cambodia

Against a backdrop of global uncertainty and slowing economic growth in China, Cambodia is shaping up to be a bright spot in Asia thanks to sustained robust growth and an inflow of foreign investment. With the Kingdom’s banking sector keen to keep pace with Cambodia’s advancement, the Post spoke with Stephen Higgins, managing partner of Cambodia-based investment firm Mekong Strategic Partners, to get his view on some recent fiscal developments.

The International Monetary Fund has issued warnings regarding Cambodia’s rapid credit growth. With the Kingdom’s credit market having expanded at about 30 per cent per annum over the past three years, do you believe there is an urgent need to slow down the pace of lending?
I think anyone would say that 30 per cent is too fast. It’s a bit like driving at 150kmh – you could do it for a little while and it might be exhilarating, but ultimately it isn’t that safe and should be avoided. There has been a lot of talk about the ability of the National Bank of Cambodia (NBC) to supervise this growth, but I’m not sure many of the banks and MFIs really have the capacity to manage this level of growth on an ongoing basis either. In a rapidly growing market, a lot of sins can get covered up.

We have recently seen the NBC move to raise the minimum capital requirements of banking institutions. Did the decision come at the right time in Cambodia’s fiscal development?
It came at a sensible time, and the NBC obviously wants the system to be as robust as possible by early 2018. It’s also important to remember that the system has grown enormously— about 750 per cent since the NBC last announced higher capital levels.

What other short-to-medium term measures can the bank look at introducing to ensure financial stability?
The NBC has also tightened liquidity requirements, which we’re already seeing have a significant impact on some of the banks. So combined with the increased minimum capital, they’ve done the two things we thought were essential. I don’t think there is much more they need to do, other than continuing to be diligent in their supervision.

Can you explain the situation regarding the country’s rising loan to deposit ratio?
It is still broadly around 1:1, and I think the liquidity rules will help keep it around there.

From a macro perspective, how do you foresee weaker growth from China impacting Cambodia’s broader finance sector?
China is slowing by a couple of per cent, which is obviously meaningful in the context of the global economy given the size of China. However, once you translate that down to Cambodia’s financial sector, the impact is likely to be fairly modest.

With Cambodia’s GDP expected to remain at a robust 7 per cent this year, what are your predictions for the performance of the country’s financial system in 2016?
We would like to see credit growth back down at around 15 per cent, which would be much more sustainable. That is still very good by global standards, although about half what Cambodia has recently been seeing. Meanwhile, it is unlikely we’ll see new banks coming in setting up a greenfields site given the new capital rules, but we may see some consolidation happening.


  • Government hits back at threats to pull EBA, suspend UN seat

    The spokesman for the ruling Cambodian People’s Party (CPP) has said the government is in no way concerned after the European Parliament gave it three months to reverse what it called the “systematic repression of the political opposition”. Ignoring the ultimatum could mean facing

  • Chinese influx pushing locals, Westerners out of Preah Sihanouk

    Some within the Kingdom’s tourism industry have speculated that the recent influx of Chinese visitors may hinder domestic tourism as the price of accommodations in the coastal city of Sihanoukville continues to rise. Preah Sihanouk province, which has become a hotbed for Chinese investment

  • Sar Kheng: Sokha requested security

    Interior Minister Sar Kheng on Sunday revealed the story behind the transfer of former opposition party leader Kem Sokha from Trapaing Phlong prison in Tbong Khmum province to his house in the capital. Speaking at the ruling Cambodian People’s Party (CPP) headquarters in Prey

  • ‘Dire consequences’ from sanctions, warns AmCham

    American businesspeople in Cambodia have warned that any sanction against the Kingdom would have “dire consequences” that could push Cambodia even further into the arms of China. In a letter to US senators and representatives dated Monday, the American Chamber of Commerce Cambodia (AmCham) said