Credit Bureau of Cambodia (CBC) has made a medium-term outlook for Cambodia’s total loan balance forecasting it to grow from $48 billion in 2022 to $119 billion in 2027, representing a 147% growth over five years.
According to CBC the forecasts have been made using historical data analysis, CBC has applied Machine Learning based techniques to estimate the future growth of the credit market in Cambodia based on certain indicators.
The three main indicators are credit demand, new loan distribution, and loan balance. Estimation is based on quantitative analysis assuming there are no external shocks or changes with current economic and regulatory environments continuing.
Rapidly increasing loan sizes
CBC highlighted that the average loan size of Cambodian borrowers over the last 10 years has increased by 248% from $2,755 to $9,575. There was also a significant increase in the average loan size of female borrowers from $$1,892 to $8,841 (367%).
This data was released by Prashanta Pradhan, Head of Research and Development at CBC as the agency celebrated a decade since it established a credit reporting system in Cambodia.
Stephen Higgins Co-Founder of the Phnom Penh based business and advisory firm Mekong Strategic Partners (MSP) told Cambodia Investment Review that CBC’s outlook provided a lot of fascinating information and encouraged the business community to read it.
“In terms of their credit forecast, $119 billion of credit by 2027 implies annual growth of around 20%, which is actually slightly slower than what we’ve seen over the past decade, and even longer. So looking through that lens, it doesn’t seem unreasonable,” Higgins said.
“However at that level of credit growth, we’d be looking at Credit to GDP of around 260%, which we think is way too high for Cambodia. At MSP, we’re expecting around $100 billion in loans by 2030, which assumes credit growth is broadly in line with nominal GDP growth so that we stop seeing that rapid expansion in the credit to GDP ratio. This will still provide plenty of opportunities for Cambodian banks,” he added.
Sustainability of the sector
According to the latest National Bank of Cambodia 2021 annual report, outstanding loans rose by 21% year on year to $45.7 billion, while customers’ deposits only increased by 15% to $38.5 billion.
Association of Banks in Cambodia has previously told Cambodia Investment Review that it was carefully watching the trend of increasing loan-to-deposit ratios and that banking institutions need to be mindful.
To read the CIR Leader Talks with ABC Chairman Raymond Sia click here.
Reflecting on the sustainability of loan growth Higgins commented his firms saw two conflicting drivers for credit growth going forward.
“On the one hand, a lot of the growth in credit over the past decade has been supported by an increase in average loan tenures, which have pushed out from 17 months to 50 months. This has allowed people to borrow more, but keep their repayments affordable, but we don’t think this can keep happening going forward so that will be a drag on growth,” he said.
“On the other hand, you’ll be seeing a lot more of the population moving into the 30-50 year age group which is the prime borrowing age, so that is going to do a lot to support consumer credit growth,” he added.
CBC celebrates 10 years of operations
Over the last decade, CBC has been able to make a significant impact on stabilizing the financial sector. Credit reporting has played an essential role in bridging information gaps between lender and borrower to quickly assess credit risks and make loan decisions, enabling access to finance.
To read more about CBC’s 10th anniversary click here.
Mr Oeur Sothearoath, CEO of CBC stated at the event: “During this journey of ten years, we have offered a modern and secure reporting and analytics infrastructure to our member financial institutions to enable an efficient and transparent credit market.”
“Our vision for the next decade will be to truly enable a frictionless decision-making environment for our members with data and technology at their fingertips,” he added.