Business

Cambodia faces risks from a credit boom, the IMF warns

  • 9 January 2013
  • From the section Business
Employees counting money at a bank in Cambodia
The IMF has called upon Cambodia's central bank to tighten the credit market

The International Monetary Fund has warned that a credit boom in Cambodia poses a threat to economic growth.

Banks have been cutting interest rates to win customers and private sector credit has increased by almost a third in the past 12 months, the fund said.

This means that borrowing levels are now equal to 37% of the country's total economic output, well above the median for most other low-income nations.

A similar surge in 2008 saw a real-estate boom and bust, the fund warned.

If the current rate of growth in the private credit market continues then it may signal overheating, according to the International Monetary Fund (IMF).

Tighter conditions

The National Bank of Cambodia, the country's central bank, has taken some steps to tighten and slow lending.

It most recently raised the amount of money that banks need to hold in reserve, making it harder for them to access the cash needed to lend.

However, the IMF said that raising the reserve requirement "does not automatically mean tighter credit conditions" and further steps were needed.

"Cambodian banks still have excess liquidity, a number of them are lowering interest rate spreads to compete for market share, and some increasingly rely on cheaper external funding from foreign banks," it explained.

The IMF advised the central bank to implement measures which are not just effective in reducing credit growth, but also cause the least amount of distortion in the market.

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