Cambodia’s Mid-2024 Economic Update: Sharp Decline in Credit Growth Signals Business Slowdown, Rising NPL Ratios Across Sectors

• 30 July 2024
• Local News
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A significant decline in credit growth indicates a slowdown in business activities nationwide. This trend is accompanied by rising non-performing loan ratios (NPLRs) across all major sectors, including commercial banks, mortgages, construction, and real estate activities, according to recent data from the National Bank of Cambodia for Q1 2024 ​and updated by CBRE Cambodia on 26 July 2024.

Credit Growth Decline

Credit growth, a critical indicator of economic health and business confidence, has decreased in the first quarter of 2024. For example, decreased credit in construction plummeted from 25% in 2020 to around 15% by 2023. Decreased credit growth for real estate activities fell from 30% in 2021 to below 25% by 2023, and the increase in loan rate dropped from nearly 25% in 2021 to around 5% by 2023 (National Bank of Cambodia, Q1 2024).  Businesses are increasingly hesitant to take on new loans amidst economic uncertainties and tightening credit conditions. This decline suggests a deceleration in economic activities, as businesses may be postponing investments or scaling back expansion plans.

Rising NPL Ratios

The National Bank of Cambodia’s data underscores a concerning rise in NPLRs across various sectors. Non-performing loans are those for which borrowers are not making their scheduled payments, indicating financial distress among borrowers. The increase in NPLRs is evident in the following sectors:

1. Commercial Banks: NPLRs have risen sharply, from around 2% in 2020-2021 to 5% by 2023 reflecting the broader economic challenges faced by businesses. As commercial banks deal with an increasing number of defaulted loans, their balance sheets are under pressure, potentially affecting their lending capacity.
2. Mortgages: The real estate market is also feeling the strain, with a significant rise in mortgage defaults, from below 1% in 2019 to around 5% in 2023. This trend points to financial difficulties among homeowners, possibly due to rising interest rates or declining property values.
3. Construction: The NPLRs in the construction sector, often a barometer of economic growth, show an uptick in non-performing loans, from below 2% in 2021 to nearly 6%, this rise suggests that construction companies are struggling with project completions and cash flow issues.
4. Real Estate Activities: Real estate activities, encompassing property development and sales, are experiencing higher NPLRs, from around 5% in 2021 to around 5% in 2023. This increase may be attributed to sluggish property sales and declining property prices, affecting developers’ ability to service their debts.

Implications for the Economy

The combination of declining credit growth and rising NPLRs paints a concerning picture for Cambodia’s economic outlook. As businesses face increasing financial stress and reduced access to credit, economic growth could further decelerate. The construction and real estate sectors, in particular, are crucial for employment and economic activity, and their struggles may have a ripple effect across the economy.

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