Cambodian Banks Face Rising Non-Performing Loans and Weak Profitability
S&P Global Ratings predicts that non-performing loans (NPLs) in Cambodia’s banking sector will increase to 9.5%-10% of outstanding loans by 2026. This rise is largely attributed to a sluggish recovery in tourism and ongoing stress in the real estate sector.
According to Ruchika Malhotra, a primary credit analyst at S&P, this surge in NPLs will require banks to set aside more money for provisions, which in turn will keep profitability low. Malhotra estimates bank profitability at a mere 0.3% in both 2025 and 2026, only slightly better than 2024.
Key Challenges for the Banking Sector
The Cambodian banking sector is also vulnerable to several other headwinds:
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Potential US Tariffs: A significant portion of Cambodia’s manufacturing exports go to the U.S. (one-third of total exports), making the banking sector susceptible to potential increases in tariffs. The uncertainty surrounding these negotiations is expected to weigh on the broader economy.
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Real Estate Market Stress: Malhotra anticipates continued pressure on property prices and sales due to an imbalance between supply and demand. Cambodian banks have substantial direct exposure to the construction and real estate sector, with this segment accounting for one-fifth of their total loans.
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Foreclosure Challenges: Without quick court settlement processes, banks are likely to be burdened with significant real estate collateral after foreclosures, as property forms a large part of the collateral for banking system loans.
Potential Regulatory Relief
Given the low profitability, S&P suggests that regulatory forbearance might be on the horizon. This could include extending the current restructuring scheme for troubled borrowers, especially if NPLs continue to climb across the system. The central bank might also delay the implementation of certain prudential measures to provide banks with more flexibility.
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