Outstanding Credit Could Reach $30B by 2020

The total amount of loans in Cambodia’s banking sector could rise to $30 billion by 2020, according to a report released today by Mekong Strategic Partners, a new investment and advisory fund.

The report puts the total amount of outstanding credit for banks and microfinance institutions at $8.5 billion, with total consumer lending at no more than $850 million.

Last month, Credit Bureau Cambodia (CBC) estimated that outstanding loans currently top $5 billion and will likely surpass $14 billion by 2020, but Mekong Partners said CBC had not used the correct model to arrive at its calculation, and that its estimate was “far too low.”

“Credit outstanding will be at least $22.5 billion, and possibly closer to $30 billion, by 2020,” the report said, predicting that the number of consumer borrowers would rise by 97 percent between now and 2020.

Amid such growth, banks will be challenged to drastically expand their operations and will need to have far higher levels of capital than the current $37.5 million legally mandated minimum, said John McGinley, co-founder and managing partner of Mekong Strategic Partners along with Stephen Higgins, the former CEO of ANZ Royal Bank.

“In 2008, when the NBC [National Bank of Cambodia] announced increased capital requirements for banks to 37.5M, system credit was under 3 billion,” Mr. McGinley said in an email.

“Given our, as well as the CBC’s, forecast of a much larger number, bank capital will need to increase substantially and it is not apparent to us how they will be able to do that.”

The report suggests that the NBC consider increasing the minimum capital requirement to $75 million.

Despite the differing forecasts, Garry Wood, CEO of CBC, said the data used by his firm was     accurate.

“[Mekong Strategic Partners’] report is basing findings on an ‘estimation’ of the financial makeup of lending in Cambodia,” he said via email.

“CBC predictions are based on actual data reported via the Banking and MFI sectors. Consumer lending baselines utilized within our projections are accurate.”

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