World Bank: Large construction and property credit downside risk for Cambodia’s economy

• 12 February 2020
• Local News
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The combination of construction, real estate, and mortgage businesses captured the largest share in bank credits, which is one of the main downside risks for the kingdom’s economy, according to the World Bank.

According to the latest Economic Development and Outlook Report published in November 2019, economic risks for Cambodia are due to three main factors, including the uncertainty over EBA withdrawal, a sharp China slowdown, and especially the vulnerabilities caused by the prolonged construction and property boom.

By June 2019, bank credit provided to the construction, real estate, and mortgage was recorded as US$6.45 billion, which is a 38.9% year-on-year increase. This number accounted for 29.6% out of the total US$21.9 billion in Cambodia’s nonfinancial sector, which is the largest among other sectors. This large amount of credit, according to the report, can put Cambodia’s economy at risk.

In addition, local analysts have recently expressed concern that real estate buyers in Cambodia are the most prone to risk from poorly regulated lending measures, in particular from project owners. (Read More)

Given the potential risks caused by the construction sector, the World Bank also suggested that macro-prudential policies both on supply and demand sides are strongly required.

For the supply side, strict measurements should be imposed on the loans provided to the construction and real estate sector. While for the demand side, the World Bank suggested the government should increase Buyers’ Stamp Duty to reduce the buyers’ incentives.

Besides the aforementioned risks, the Ministry of Economy and Finance has also recently lowered the forecast of GDP growth in 2020 from 6.5% to around 6.1% due to reasons such as the trade war between China and the US, the Coronavirus outbreak, climate change, the Iran- US conflict, and widespread protectionism, among others.

 

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