Cambodia's Financial Environment

The Highlights of the week 2023/11/06 - 11/10

1.    Kingdom’s private segment debt relatively lower in region
According to the National Bank of Cambodia (NBC) 2022 report, last year's private sector loans reached $56.1 billion, an increase of 20.2% compared to 2021. The Central Bank attributed the growing private debt in the previous year to the significant increase in economic activity resulting from post-pandemic recovery measures. Although loans from commercial banks accounted for over $46 billion, loans from microfinance institutions reached $9.7 billion. Compared to 2021, commercial bank loans grew by 19.3%, while microfinance loans increased by 25%.
The NBC report indicated that a significant portion, approximately 32%, of private loans were utilized in the real estate, construction, and housing sectors. The Cambodian banking industry faces increasing systemic risks due to economic uncertainty and a rise in non-performing loans (NPLs). Key indicators compared to GDP, such as total credit, non-financial credit, and domestic credit to the private sector, were recorded at 195%, 188%, and 177%, respectively, by the end of 2022.

However, a comprehensive study conducted by Yuanta Securities Cambodia discovered that the level of private sector debt, particularly in countries like Cambodia, tends to be overestimated relative to the gross domestic product (GDP). After adjustments for government final consumption expenditure and the informal economy, Cambodia's level of private sector debt remains relatively lower compared to more advanced Asian economies such as Thailand, Malaysia, Singapore, and South Korea. Despite this, the rapid growth rate of private sector debt has raised concerns about potential over-indebtedness, highlighting the financial sector's vulnerability to external shocks.

As for the banking industry's non-performing loan rate, it currently remains at a certain low level, with microfinance institutions showing better performance. Hence, while expanding in the private credit sector, the focus should be on monitoring both quality and quantity changes to effectively control and manage the lower risk for the National Bank of Cambodia.

2.    Central government revenue in Cambodia has reached $4.6 billion year-to-date. 
By the end of the first nine months of 2023, the Budgetary Central Government (BCG) revenue in Cambodia surpassed 19 trillion riel (over $4.6 billion), reaching almost 73% of the annual fiscal target. According to the report from the Cambodian Ministry of Economy and Finance, this marks a decrease of approximately 3% compared to the same period last year. From January to September, the government accumulated 19.107 trillion riel (about $4.64 billion), constituting 72.8% of the annual Budget Law (BL).

Tax revenue accounted for 16.251 trillion riel ($3.95 billion), representing 85.06%, while grants and other income stood at 1.009 trillion riel ($245.17 million) and 1.846 trillion riel ($448.57 million), making up 5.28% and 9.66%, respectively. This indicates an overall revenue decline of about 3%, with tax revenue and grants decreasing by 3.72% and 21.01%, while other income witnessed a significant increase of 19.83%. Over the first nine months of 2023, government expenditures amounted to 20.823 trillion riel ($50.6 billion), covering 63.31% of the annual budget. Operational expenses were 15.142 trillion riel ($36.8 billion), accounting for 72.72% of the BL; meanwhile, non-financial asset net acquisition was 5.246 trillion riel ($12.7 billion), representing 14.03%. Overall expenses grew by 14.03% compared to the previous year, with operational expenses increasing by 15.57%, and non-financial asset net acquisition experiencing a significant surge of 55.40%.

The Ministry of Economy and Finance noted that although revenue growth was slow and expenditures were rapid over the first nine months of 2023, this resulted in a deficit of 241 billion riel ($58.61 million), which is relatively small, approximately 25.84% of the projected annual budget deficit. This deficit during this period can be attributed to a debt increase of 3.29 trillion riel ($800.33 million) and a rise in non-financial asset net acquisition of 1.574 trillion riel ($382.93 million). Currently, about 85% of revenue comes from taxes. Given that the decline in revenue aligns closely with the decrease in tax revenue, it's evident that the primary cause is the lower tax income compared to the same period in the previous year. This implies that Cambodia's post-pandemic economic recovery for both businesses and individuals has not reached but is approaching the levels of the previous year. Despite external pressures and a slowdown in the real estate market, it's anticipated that this year's economic growth rate will still reach 5.3%.