Property exposure risks remains Cambodian banks’ Achilles heel: analyst

Profitability will remain under pressure due to stiff competition and high costs.

Exposure to the construction and real estate industries will continue to give issues to Cambodian banks in 2024, says S&P Global Ratings.

“The system's large share of high-risk exposures leaves banks exposed to correction, particularly construction and real estate at nearly a fifth of the loan book,” said S&P primary credit analyst Ruchika Malhotra.

Local banks’ profitability will remain under pressure during the year amidst stiff competition, elevated credit costs, and an asset book dominated by fixed-rate loans. As a result, banks have to absorb higher deposit costs. This, in turn, will further squeeze on the banks’ revenues.

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Loan growth is expected to remain lower than pre-pandemic levels amidst moderate customer demand. This, combined with tighter funding conditions and normalizing reserve requirements, will restrain lending, Malhotra said.

Risks from the local microfinance sector's aggressive growth will laso remain elevated. The fast-growing and underregulated microfinance sector--with an LTD ratio of more than 200%--and more aggressive lending practices than banks reflect higher credit risks, Malhotra warned.