While the government expects the country’s economy to grow at about 7 percent for the next two years, downside risks emanating from the banking and real estate sectors are a growing concern, officials say.
A rapid expansion of credit in the financial sector combined with a potential oversupply in the real estate sector are particularly worrying signs, said Vongsey Vissoth, secretary of state at the Finance Ministry, on the sidelines of a forum on Cambodia’s macroeconomic management on Thursday.
“We are concerned about risks in the banking and finance sectors, as the size of lending is very big,” Mr. Vissoth said. “[And] especially in the construction and real estate sectors, which are showing signs of oversupply.”
“The National Bank and the government are considering ways to slow credit growth, and we may implement caps for fragile sectors, like construction and real estate,” he added.
Last year, credit from the country’s lending institutions was similar to deposit levels as a percentage of gross domestic product, according to figures provided by the Finance Ministry. However, officials are concerned that credit may soon outstrip deposits, given that total credit grew by about 30 percent last year, while deposits grew by only 19 percent.
Chheang Vanarith, director of the ministry’s macroeconomic department, explained that a high credit-to-deposit ratio could expose banks to cash-flow issues if loans cannot be repaid, with lending to the real estate sector a notable concern.
“Real estate is expanding rapidly. We worry that soon there may be an oversupply and rise in vacancies,” Mr. Vanarith said during the forum. “This may put loans in the sector at risk, so we are researching and monitoring it even closer.”
One-eighth of bank credit last year went to the country’s construction and real estate sectors, according to the ministry.
The World Economic Forum’s latest Global Risks Report, released last month, notes that Cambodia is among seven economies in which the risk of a bursting asset bubble—tied to the potential for an oversupply in the property market—was a top concern.
Tom O’Sullivan of Realestate. com.kh said that if the demand in the property sector suddenly fell below supply—which would in theory reduce prices and put pressure on investments and loans in the sector—the banking sector would be insulated from most fallout.
“Around 70 percent of construction developments here are funded by foreigners. There are also a sizeable number of self-funded property buyers and a…number of cash buyers,” he said.
Christophe Forsinetti, a banking expert and chief operating officer at property investment firm JSM Indochina, said that while contagion channels between the country’s banking and real estate sectors exist, a lack of information cast uncertainty on the extent of potential exposure.
“It is clear that some banks have real estate exposures,” he said. “There needs to be more information, particularly in investigating banks’ real estate portfolios.”
But closer monitoring of credit growth in the real estate and construction sectors was a step in the right direction, Mr. Forsinetti said.
“In the next two years, we should expect a property oversupply,” he said. “The risk will grow as more domestic buyers come to the market with loans, so it’s good that the government are acknowledging it now.”
