Weak regulations heighten risks for Cambodian banks

The banking system is just one point shy of being amongst the highest-risk systems worldwide.

The Cambodian banking system remains of relatively high risk, a result of a weak regulatory system and insufficient government support for local banks, according to a report by S&P.

S&P classified Cambodian banks in group ‘9’ on a scale of 1 to 10, just one point shy of being amongst the highest risk banking systems in the world.

Strong foreign direct investments cushions the country's current account deficit, S&P noted. The country’s stable GDP growth also tempers economic risks for the banking system--although GDP per capita remains low.

“"Risks are high given strong credit growth, elevated property prices, and potential latent asset quality issues," said S&P Global Ratings credit analyst Michael Puli. "However, Cambodia's stable GDP growth tempers economic risks for the banking system, in our opinion."

“We expect economic risk in Cambodia's banking sector to remain high by global standards. This reflects the country's low income level, underdeveloped economy, and constrained monetary and fiscal flexibility,” S&P stated in a note.

Further, credit risk in the economy are expected to remain extremely high owing to Cambodia’s sizable private sector debt, concentrated economic activities, relaxed underwriting standards, and a very weak payment culture.

Other countries in S&P’s Banking Industry Country Risk Assessment (BICRA) group '9' are Argentina, Azerbaijan, Bangladesh, Egypt, Greece, Kazakhstan, Kenya, Mongolia, Papua New Guinea, Sri Lanka, Tunisia, Turkey, and Vietnam.

Photo courtesy of Bjørn Christian Tørrissen (Wikimedia Commons)