The National Bank of Cambodia (NBC) says it is closely monitoring the development of the real estate and construction sectors because of their close relationship with banking in terms of credit growth.
The Credit Bureau Cambodia (CBC) reported that consumer loans as of September 2019 totalled $7.65 billion and, of those, mortgages accounted for 48.36 percent, credit cards 0.61 percent and individual loans just over 51 percent.
The CBC says unpaid mortgage debt of 30 days or more as of September 2019 were only 0.57 percent of the total, while personal or consumer loans were 1.75 percent and credit cards were 2.65 percent. These are known as non-performing loans (NPLs) by banks and microfinance organisations.
The central bank, however, warned that if the consumers do not spend the loan for the purpose it was given, the rise in credit could become economically risky.
Chea Chanto, the governor of the NBC, said at the bank’s closing stocktaking meeting and goal-setting conference last Friday at present, the construction and real estate sector has increased and contributed significantly to boost economic growth, but that could dramatically change.
“The growth of the construction sector demands cautious measurement and deep evaluation by all relevant government agencies regarding issues such as tax on the purchase of real estate, the selection of qualified construction projects and limitation on loans,” he said.
“The growth in the construction sector is good for us [Cambodians], especially for the lower- and middle-income people because it means our people can have a proper house in which to live. It’s a new issue for us so we have to be careful. Therefore, we have to check and monitor its future growth and ensure there are no [negative] issues. It is an important task so the central bank has to be careful.”
The NBC says in its macroeconomic and banking sector update 2019 and outlook for 2020 that the credit growth in the banking sector has been recovering after it saw a fall over the past three years. The rise is stemming from the growth of people’s incomes, increasing demand and the diversification of services among the financial institutions.
The NBC adds that the recovery of credit growth is supported mainly by growth in loans for real estate purchase and construction, consumption and commerce. “Credit growth in 2019 was mostly overwhelmingly based on mortgage loans and on consumer product makers,” the NBC added.
The Central Bank governor said Cambodia’s economy could face some risks this year because of the slowdown of the Chinese economy, the rise in price of crude oil because of current geo-politics and the possible loss of the Everything but Arms trade deal, which would directly affect the garment sector. Also there is a risk of oversupply in the construction sector that could lead to homes being worth less than was paid for them, causing a credit crunch.
Chea said Cambodia’s economic growth will remain at 7 percent with contributions from exports, foreign investment and the tourism sector.
Kim Heang, founder of Khmer Real Estate Co and regional operating principal of KW Cambodia, said that credit growth on housing loans with the banking and wider finance sector would be good because they can record the transactions, loan defaults and supply and demand.
“When customers use a bank for a home loan, they tend not to default. When they pay via installments to borey developers, the loan default is much higher because the developers do not analyse closely whether a buyer can afford the loan. Their customers consequently are considered to be high risk. I urge customers not to pay the loan directly to developers. Developers should recommend customers to work with a bank,” he added.