Cambodia Investment Review
In light of rising credit risks and ongoing economic volatility, the Credit Bureau of Cambodia (CBC) is pressing for a revamp in traditional risk monitoring and management practices. The CBC’s latest presentation at the “Navigating Corporate Debt Management: Banking and Legal Insights”, which comes amidst an array of unsettling financial data, advocates for the adoption of digital tools and analytics to navigate the increasingly uncertain economic landscape.
Read more: CBC introduces innovative Credit Risk Heat Map for the Cambodian Financial Industry
According to the leading provider of financial information, analytical solutions, and credit reporting services in the Kingdom as of September 2023, the Cambodian consumer credit market accounted for USD 49.02 billion, representing a year-over-year growth of 6%. Similarly, commercial credit reached USD 7.46 billion, marking an identical rate of growth. While these numbers seem encouraging, a closer look reveals an unsettling trend: the DPD30+ Ratio (Days Past Due over 30 days), which measures the quality of credit, has spiked to 5.78%—up 2.52% from September 2022.
Pradhan Prashanta, Head of Research and Development at CBC, offered a new perspective on these developments. “The financial sector cannot afford to be complacent. Traditional approaches to risk monitoring and management are proving increasingly insufficient in the current climate of rising credit risks and economic uncertainty,” he cautioned.
Digital Transformation: A Compelling Need
To combat these challenges, Prashanta argues that financial institutions must accelerate their digital transformation initiatives. He emphasized the importance of incorporating multichannel communication methods and robust data analytics into risk assessment frameworks.
“Digital tools are not optional add-ons anymore; they are essential components of effective risk management,” said Prashanta. He added, “We’ve seen significant advancements in local data and digital infrastructures, such as Bakong, CamDX, and CBC. These platforms are more than just technological milestones; they’re vital tools for more effective debt management and should be integral to our financial ecosystem.”
Prashanta highlighted that a one-size-fits-all approach to customer communication is no longer viable, given the intricacies of today’s credit market. Financial institutions must leverage multiple channels to reach their customers, offering tailored solutions that can help maintain credit quality and facilitate more effective debt collection.
“The era of single-channel communication is over. To navigate this complex landscape, banks and financial institutions must adopt a more nuanced, multichannel approach to customer engagement,” he elaborated.
A Game-Changer for Risk Management
The availability of comprehensive, real-time data from platforms like Bakong and CamDX provides financial institutions with unprecedented capabilities for better risk assessment and customer service. These platforms are no longer merely technical achievements but have evolved into essential tools for redefining how risk is perceived and managed.
“Digital platforms are game-changers. They provide actionable insights that were previously unavailable or too time-consuming to gather, enhancing our ability to make data-driven decisions in real-time,” Prashanta commented.
The uptick in the DPD30+ Ratio signals a need for the financial sector to take stock of current practices. Prashanta emphasized the importance of timely action, but framed it as an opportunity for adaptation and improvement. “We’re at a juncture where it’s crucial to thoughtfully reassess our risk management strategies. Incorporating digital advancements as key components in these strategies is a constructive way to adapt to the current economic landscape,” he stated.
The CBC’s call to action offers a sobering but essential roadmap for Cambodia’s financial sector. As traditional methods show their limitations in the face of growing economic uncertainties and increasing credit risks, the focus clearly shifts towards digital transformation. As Prashanta succinctly put it, “In this new financial ecosystem, adaptability and swift action are not just virtues but necessities. The future of effective risk management in Cambodia’s credit markets depends on our willingness to change.”
