IMF Cautions Cambodia on Credit in Real Estate Sector

• 3 October 2018
• Local News
• 1590 Views

Cambodia needs to be more cautious about credit in the real estate sector, according to the end-of-mission press releases issued by the International Monetary Fund (IMF) on 2 October, 2018 regarding the preliminary findings of the “2018 Article IV consultation”.

The preliminary findings (not the views of the IMF’s Executive Board) of the 23-day mission 19 (September to 2 October, 2018), show that Cambodia’s economy in 2018 will grow at 7.25% while inflation will remain relative low at 2.5%.

In regards to economic growth, the IMF said that economic activity has been strong in 2018 while growth is projected to remain robust in the near term. The real estate sector will also contribute significantly.

Although the overall outlook is positive, there are concerns about bank credit quality which will pose risks to financial and macroeconomic stability, namely 1) increasing concentration in the real estate sector and unregulated lending by real estate developers, 2) reliance on external funding, and 3) growing importance of microfinance institutions (MFI).

In addition, bank credit, which is concentrated on the real estate and construction sectors, is expected to grow around 20% in 2018 with lending by the MFI sector growing at an even higher rate.

Meanwhile, the current account deficit is projected to grow by about 10% of GDP in 2018 due to higher imports, including imports of construction materials.

The IMF argues that in order to avoid possible financial risks inthe real estate sector, the National Bank of Cambodia (NBC) must continue to implement its policies more efficiently, such as raising risk weights for real-estate lending.

The IMF will prepare the reports to the IMF’s Executive Board for discussion and decision.

• Analysis
• Business and Market