Raising the alarm on rising private debt
Sangeetha Amarthalingam | Publication date 31 December 2020 | 20:59 ICT
Although Cambodia’s economic growth has been somewhat underpinned by strong credit growth, it is starting to worry experts as the pandemic prolongs

After years of expanding credit to the private sector which fuelled economic growth, Cambodia might have to come to terms with a burgeoning private debt, one which the World Bank warned as having “substantially increased” in the past two decades.

It does not help that the pandemic is further weighing down on it, although monetary measures have temporarily staved off risks of increased indebtedness.

As of September 30, 2020, 270,648 loan accounts valued at around $3.7 billion were restructured, with small business loans forming the largest segment at 60 per cent.

It was followed by mortgage and personal finance about 15 per cent each, said Oeur Sothearoath, CEO of Credit Bureau Cambodia (CBC).

But although containment of financial risks triggered by the pandemic helped to maintain stability in the banking and microfinance sector, the World Bank found that risks accumulated by an overleveraged financial sector remained.

“Private debt has risen significantly, and vulnerabilities, including high credit concentration, related-party lending risks, lack of consolidated cross-border supervision, and gaps in the implementation of risk-based supervision, remain,” the latest economic update in November showed.

Credit to gross domestic product (GDP), which mostly encapsulates private debt, has inched up year-on-year.

National Bank of Cambodia (NBC) data revealed that credit-to-GDP came in slightly below 120 per cent as of December 31, 2019.

More worrying was the 19 per cent credit-to-GDP gap, which is above the 10 per cent threshold of the Bank of International Settlement, signalling a build-up of excessive credit.

(The gap is an early warning indicator of a financial crisis for central banks, which can draw up macroprudential policies to stabilise the sector).

Total debt (external and domestic debts), according to the World Bank, was 148.4 per cent of GDP in 2018, from 58.3 per cent of GDP in 1997.

Often, the private debt size is larger than public debt, the latter amounting to some $7.6 billion or 28.5 per cent of GDP as of June 2020, well below the 40 per cent buffer.

“Yes, exactly,” said economist Dr Chheng Kimlong. “Private sector debt is now larger than public sector debt.”

However, he contended that it is “in fact a general trend in many countries, including member nations of the Organisation for Economic Cooperation and Development”.

In Cambodia, the surge is bolstered by the phenomenal rise in loans given by microfinance institutions and commercial banks, and credit card applications.
https://www.phnompenhpost.com/special-r ... ivate-debt

To anyone who still has money invested (in any form) in any local bank or other local financial institution: Its time to get out.

truffledog wrote: ↑Sat Jan 02, 2021 3:00 am To anyone who still has money invested (in any form) in any local bank or other local financial institution: Its time to get out.

So what do you suggest? Keeping cash under the mattress?

samrong01 wrote:

truffledog wrote: ↑Sat Jan 02, 2021 3:00 am To anyone who still has money invested (in any form) in any local bank or other local financial institution: Its time to get out.

So what do you suggest? Keeping cash under the mattress?

I think you should definitely always follow the advice of random people on the internet.

Bitte_Kein_Lexus wrote: ↑Sat Jan 02, 2021 8:18 am

samrong01 wrote:

truffledog wrote: ↑Sat Jan 02, 2021 3:00 am To anyone who still has money invested (in any form) in any local bank or other local financial institution: Its time to get out.

So what do you suggest? Keeping cash under the mattress?

I think you should definitely always follow the advice of random people on the internet.

better safe than sorry...the World Bank is a renowned institution..when they ring the bell its well worth attention. There are still many people out there who believe that 8% fixed term interest with a local financial institution is a safe investment..its NOT. High return, high risk. If you are well aware of that, no need for action. If you are rather conservative, you better look around and put your eggs in a different (safer) basket.

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The only people who get hurt on a roller coaster are the ones who jump off in the middle of the ride.