Cambodia's Financial Environment

The Highlights of the Week 2024/02/19 - 02/23

1.    Cambodia collects nearly $6 billion in taxes in 2023
According to the recently released official report, Cambodia's tax revenue for various categories in 2023 amounted to $5.9 billion, a decrease of 3.9% from $6.14 billion in 2022. The country has two institutions responsible for taxation. One is the General Department of Taxation (GDT), which focuses on domestic taxation, including income tax, payroll tax, value-added tax, and property tax, while the other is the General Department of Customs and Excise (GDCE), which focuses on international taxation such as import and export duties. GDT's revenue in 2023 was $3.61 billion, an increase of 4.5% from $3.45 billion in 2022. The report states that this $3.61 billion in tax revenue ensured the department achieved 101% of its annual target. The report also states that GDCE's revenue in 2023 was $2.28 billion, a decrease of 15.7% from $2.67 billion in 2022. Kun Nhim, the Director General of GDCE, attributed this to a series of challenges, including a decrease in automobile imports, and attributed the tax reduction to the implementation of the ASEAN Free Trade Agreement and a decrease in imports due to domestic production growth.
From the data, it can be seen that Cambodia began to recover from the pandemic in 2023. The domestic taxation part met the government's revenue expectations, while the GDCE part showed growth in exports compared to 2022. However, imports have not yet returned to pre-pandemic levels, indicating insufficient consumer spending and investment. There are high expectations for Cambodia's growth in 2024, and the recovery situation in the first half of 2024 should continue to be monitored.

2.    Rate cuts accelerate economic prospects
Last year's credit tightening in the Cambodian banking industry prompted many financial institutions to lower interest rates in 2024 to stimulate macroeconomic activity amid continued strong loan demand. Credit grew by $57.6 billion in 2023, up by only 4.8% from the previous year. Deposits increased by 13.1% to $47.9 billion last year, and the banking system's assets increased to $84.3 billion, up by 8.6% annually. The National Bank of Cambodia (NBC) stated that as of December 2023, the country had 58 commercial banks, 9 specialized banks, and 87 microfinance institutions (MFIs).
Different industries showed varying loan growth: accommodation and food services grew slightly by 0.6%, wholesale loans grew by 4.8%, home loans grew by 6.4%, real estate loans grew significantly by 16.9%, and construction loans grew by 13.9%. The central bank also pointed out that the non-performing loan rates for the banking industry and microfinance institutions were 5.4% and 6.7%, respectively.
Toch Chaochek, CEO of Cambodia Post Bank (CPBank), stated that many financial institutions have lowered interest rates by around 0.5 percentage points. This strategy aims to increase lending in the market, especially considering that many institutions did not issue many loans last year. Some financial institutions have begun to cut interest rates because their performance suffered last year due to the global economic downturn and rising inflation. At the same time, the Fed's rate hikes last year also affected some financial institutions' raising of interest rates, resulting in very low loan growth.
It is important to note the non-performing loan rates in 2023, which have increased to 5.4% for the banking industry, an increase of 2.4 percentage points from 2022, and as high as 6.7% for microfinance institutions, an increase of 4.2 percentage points. The increase in non-performing loan rates is relatively high given the small increase in lending. Although within an acceptable range, this has already sent some warnings, and it is important to observe and monitor whether business closures or default rates have increased due to poor economic conditions. This year, continuous observation and particular attention are required.