Cambodia's banking sector high risk, but economy on track at 7% growth, says S&P

SINGAPORE- Ratings agency Standard & Poor's has classified Cambodia’s banking sector in group '9' of its Banking Industry Country Risk Assessment (BICRA)report, along with Argentina, Kenya, Nigeria, Papua New Guinea, Tunisia, and Vietnam.

The agency says economic risk for Cambodia's banking sector remains high by global standards, reflecting the country's low income level, underdeveloped economy, and constrained monetary and fiscal flexibility.

“We expect credit risk in the economy to remain extremely high owing to relaxed underwriting standards and very weak payment culture, especially in the context of high credit growth and rising property prices,” S&P says.
“However, we believe the stable GDP growth and a renewed reform push should temper economic risks facing banks in Cambodia.”

S&P says a weak regulatory framework and passive supervision with restricted capacity continue to expose Cambodia's banking industry to significant risk.

“We believe it will take some time for the banking system to see any material improvement, despite recent initiatives to transition to risk-based supervision,” the agency says.

“Overcapacity also restrains the industry's risk-adjusted returns. In addition, a lack of depositor confidence – possibly reflecting past bank failures — weakens the stability of banks' customer deposits. For example, local banks witnessed significant deposit withdrawals in 2013 following a dispute on the general elections.”

S&P believes the Cambodia economy will continue to grow at around 7.0% annually over the next two years.

“The Government's focus on diversified crops in the agricultural sector and on developing tourism infrastructure should further support sustainable economic growth,” it says. www.standardandpoors.com (ATI).