The World Bank has warned that the rapid growth of lending by Cambodia’s banks is still a concern, despite a recent slowdown in credit disbursals.
“Credit growth, which has been driven largely by wholesale and retail financing, and starting in 2011 agriculture financing, has eased to 29.2 percent (year on year) in January 2013,” the bank said in an economic update sent out on Friday.
The annualized rate of lending growth was 34 percent in December and as high as 34.6 percent in January 2012, the bank said.
The high rate of growth had raised concerns of overheating from international financial institutions, and led the National Bank of Cambodia to raise the reserve requirement imposed on banks from 12 to 12.5 percent in September.
“[The] Declining trend has started since August 2012 thanks to slower growth in agriculture, manufacturing, retail and construction financing,” the bank said.
However, it said the trend “continues to raise concerns as a financial risk. The bank pointed out that much of the lending was going into improving Cambodia’s ability to add value to agricultural products before they are exported.
“However, due to banking supervisory capacity challenges, close monitoring is warranted,” it said.
After revising upward its growth estimate for last year to 7.3 percent, the World Bank is predicting 7 percent gross domestic product growth in this year and next.
It also noted that Cambodia’s trade deficit in 2012 was 11.5 percent, up from 8.7 percent in 2011, due to rising fuel imports and construction materials being brought in for large hydropower projects.
However, this was canceled out by a jump in foreign direct investment, which reached $1.5 billion last year, it said.