Opinion: The Road Ahead – Banking & Economic Outlook For The Remaining Months Of 2026

Raymond Sia

In my February 2026 edition of Right Angle column, an outlook along with a forecast was provided for March, June and December 2026 on a few indicators such as policy interest rates by central banks such as US Federal Reserves (“Fed”), Bank of England (“BOE”) and Bank Negara Malaysia (“BNM”). 

As we review the forecasts made earlier; it is also timely to provide an updated forecast & outlook for the remaining 6 months of 2026 as below.

*Source – dollarfx.org

1. Dollar Outlook – Is The Current Resurgence Sustainable? 

At the time of writing this article, the Dollar Index / DXY was higher by around 3% year-to-date. Love or hate the Dollar, this currency seems to be able to withstand headwinds & challenges.

There are many factors that would affect the world’s most popular currency used for trade and national reserves; which includes US Federal Reserve interest rate trajectory and geo-political situation especially in the Middle East which has a direct impact on oil price & inflation.

The latest naratives from central banks on both sides of the Atlantic Ocean is fairly consistent; inflation risk remains but (appears) to be under control with the central banks’ commitment to bring inflation down to their 2% target.

The next 2 months of economic data on inflation and employment / jobs will be defining and will provide more clarity on Fed’s interest rate path; which will have an impact on the Dollar.

Many investors (and speculators) have taken a long-position on Dollar for the remaining months of 2026 i.e. expecting the Dollar to strenghen. 

Based on recent Commodity Futures Trading Commission data, there is a net long position worth around USD30 billion, the largest since the start of Mr Donald Trump’s second presidency. With speculative Dollar-long positions already looking stretched, even a small shift in rate-hike expectations could spur a substantial reversal.

Right Angle’s View :  The Dollar and British Pound will remain strong vs Emerging Currencies; backed by these currencies’ higher yield relative to other currencies.  No change in interest rates by Fed and BNM for the remaining months of 2026.  BOE will hike 25 bps by year end.  There could potentially be an interest rate cut of 25bps by Fed before year end if inflation and labor data show a declining / softening trend (unlikely but not impossible).

“Don’t fight the Fed – Martin Zweig” 

2. Banking Outlook – Is The Worse Over for Loans, Liquidity & (Credit) Losses?

Year 2026 did not start well for the banking sector in Cambodia. 

The banking industry faced and is still facing a confluence of headwinds such as economic impact from Thailand border conflict, higher inflation from higher oil price / Middle East conflict, lower lending growth due to high non-performing loan (“NPL”).  During the past 12 months, we also saw a handful of banks being sanctioned and placed under liquidation; all of which are not good from a reputational angle for the industry and country.

Taking a more conservative stance, it appears that the banking industry will face more challenging times & headwinds before it recovers. 

Recovery for the industry is very much predicated on the swift resolution of NPLs and tactical approaches to stimulate lending; for lending to be chanelled to the productive sectors of the economy such as agriculture, SME / manufacturing and tourism.   These important industries need financial support especially to scale-up and achieve an optimum level of productivity.  Other potential industries should also be explored to reduce reliance on the existing 3 economic industry drivers as mentioned above. 

Inflation risk will likely persist throughout the year despite the eventual outcome of the resolution in the Middle East war and this will adversely impact consumer’s purchasing power and debt repayment capacity; which would have a direct correlation on industry NPL position.

This period could be an opportune time for the Government & State-owned financial institutions to launch (again) sector specific co-financing schemes or even impose “productive sector loan targets” for financial institutions to comply for the next 24 months as a moral suasion to spur lending activities.

If the banking industry lending activities remain muted, we are very likely to see large majority of the banks recording lower profitability for 2026 since more than 70% – 80% of the industry’s revenue are generated from lending activities.

Right Angle’s View :  Low single digit loans growth and elevated NPL ratio will persist (unfortunately) for the remaining 6 months of 2026. We may see more moral suasion being applied to encourage more lending to the productive sectors.

 “Banking is very good business if you don’t do anything dumb – Warren Buffett”

3. Economic Outlook – Shape of the recovery curve – “V”, “U” or “K”? 

The recent forecast from multi-lateral organizations such as the World Bank and International Monetary Fund are reflecting a more pessimistic view of the Cambodian economy. While the “jury is still out”, we do not have the luxury of time with only less than 6 months to year end. Urgency and actions are needed to ensure we end 2026 with a more commendable economic outcome.

I am not an economist.  However, as a banker in emerging markets for over 15 years, I have seen how banks’ lending activities can positively impact an economy.  On the flip side, over-lending to a particular sector can cause an “unhealthy bubble” and over-gearing a customer is a blantant irresponsible action.

Access to finance responsibly and correctly can create a multiplier effect in an economy.

Another right angle (no pun meant) for consideration to stimulate economy is to increase Foreign Direct Investments (“FDI”) into the country.  We have seen commendable efforts by the Government on this front but more can still be done.  Reputation (and perception) of a country often precedes investments and we need more “reputational-strengthening activities & efforts”  to create the right perception & impression to attract more FDIs. 

Right Angle’s View :  GDP of 3.0% to 3.5% for 2026.  Prolonged “U-shape” at the lower base (impact to 2027’s GDP) if industry lending activities remain muted.  This may sound bias being a banker but the eventual economic outcome is dependant on how much of new loans can be disbursed to the right & productive economic sectors.

“The best way to predict the future is to create it- Peter Drucker”

Raymond Sia currently serves as the Managing Director of Canadia Investment Holding Plc and Board Director for Canadia Bank and Credit Bureau Cambodia.  He believes forecasts are easy to make but it should be done responsibly and with accountability.  Raymond is also the author of the “Right Angle – The Collection Volume One” which is now available for sale.  The views expressed above are strictly the author’s personal opinion and do not represent the organizations & institutions he is attached with or represents.