At the start of the year, the issue of debt is once again bursting into the public debate with a level of private indebtedness which has now almost doubled Cambodia’s GDP.
Cambodian private debt and economic recovery
Cambodia’s private debt reached 180% of the country’s gross domestic product (GDP) in 2022, an increase of 20.2% compared to December 2021.
According to figures from the annual report of the National Bank of Cambodia (BNC), private sector credit reached a total of $56.1 billion in 2022, which mainly breaks down as follows.
Loans from banks to the private sector represent 46 billion dollars (an increase of 19.3% compared to last year) and loans from microfinance institutions amount to 9.7 billion dollars (+ 24, 7% compared to 2021).
In total, 14% of the loans were for home ownership, 9% were related to the real estate sector, 16% were for retail businesses and 10% for commercial businesses. Another 10% was for individual loans, 4% for financial institutions and 5% for non-banking and non-financial services.
The report argues that the increase in the volume of credit is due to the resumption of economic activities and the financial needs of customers.
Debt, a double-edged effect
However, the increase in private debt is a double-edged sword that is not without consequences for the economy. Indeed, on the one hand the indebtedness allows an effective resumption of the economic activity by the contribution of fresh liquidities on the market, but on the other hand the increase in the level of indebtedness can weaken the stability of the economic sector. in its entirety.
Vissoth Vongsey, Permanent Secretary of State of the Ministry of Economy and Finance, notably declared on January 25 at a forum on macroeconomic management and the national budget law 2023 that if the debt had made it possible to support the recovery of the economy after the COVID-19 pandemic, it increased at the same time the risk of instability when the interest rate increases.
Rising rates have already started in some sectors, such as construction and real estate,
Indicators to check
According to the director general of the BNC, Serey Chea, however, there are many indicators to determine whether the level of private debt in the banking system is a concern or not. Three of them are particularly and regularly controlled by the BNC.
-The first is the growth in the debt ratio.
If the growth rate goes from 50% to 180% dramatically, it’s really worrying,
says the general manager.
-The good or bad quality of credit, that is to say the ability of creditors to repay their debts, is also to be checked.
-Finally, the diversification of loans from banks and microfinance institutions is regularly examined by the BNC to see which sectors are most in need.
However, Serey Chea did not provide additional details on these mechanisms, nor did he give the current interpretation of the increase in Cambodia’s private debt with regard to these indicators.
With the kind authorization of Cambodianess, which made it possible to translate this article and thus make it accessible to the French-speaking readership.
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