By Harrison White
Cambodia’s banking sector is entering a period of both challenge and opportunity. Rising non-performing loans (NPLs), slowing credit growth, and global headwinds are testing the resilience of the financial system, even as digitalization and governance reforms reshape the industry. Against this backdrop, the Association of Banks in Cambodia (ABC) is seeking to redefine its role under the leadership of Chairman Rath Sophoan.
Founded in 1994 and formally recognized by the Royal Government, the ABC is the official body representing Cambodia’s private banking sector. It became the eighth member of the ASEAN Bankers Association in 1999 and today counts both local and foreign-owned banks among its members. As Mr. Sophoan explains, the association’s mandate remains the same: to promote the development of Cambodia’s financial system while safeguarding the interests of its members. But in 2025, the challenges are very different.
“Fast forward to today, we are actively reviewing how best the association can serve its members, customers, and the overall industry,” he said. “That means listening closely to stakeholders and adapting our structure to ensure relevance.”
Addressing Sector Headwinds
At the ABC’s 2025 Annual General Meeting, delegates underscored three pressing issues: slowing credit growth, rising asset quality risks, and mounting external pressures. Credit growth has slowed to just 1% with housing loans experienced a negative growth, while non-performing loans are estimated to reach ~8% at the end of Jun 2025.
“These numbers are a clear signal of stress in the market,” said Sophoan. “We take the rise in NPLs very seriously. Banks are working to provide restructuring options, repayment holidays, and faster recovery & collection for defaults. With many of our members supported by well-capitalized local and international shareholders, the issue is more about profitability than systemic risk.”
Global factors are also weighing heavily on Cambodia’s financial system. U.S. tariffs on key exports and protectionist trends worldwide have created an uncertain environment for growth. “The headwinds are real,” Sophoan noted. “That’s why our focus is on building resilience—through digital adoption, strengthening regulatory & prudential and risk management framework including the consumer protections.”
Balancing Advocacy and Stability
The ABC’s role is not only to protect the interests of member banks but also to ensure stability and public confidence in the financial system. That balance has been central to its recent agenda.
In collaboration with the National Bank of Cambodia (NBC) and international partners such as the United Nations, the ABC has been monitoring the implementation of 22 priority actions endorsed in 2024. Ten have been completed, with 12 still underway. These initiatives span regulation, borrower protection, data sharing, informal lending, and alternative financing.
Highlights include the establishment of a Financial Consumer Center, promoting responsible lending and borrowing, consumer protection, and complaint and disputes handling. The Association has recently approved the sectoral fund pool set-up to support financial literacy and debt counseling and dispute resolution in order to address the industry’s challenges.
Sophoan said: “These measures are crucial. They show that the ABC is not just advocating for banks, but also ensuring that the industry delivers fair and transparent business that safeguard the customers’ interests.”
Market Fragmentation and Consolidation
With more than 50 commercial banks and dozens of microfinance institutions, Cambodia’s financial sector is among the most fragmented in ASEAN. While this has contributed to financial inclusion, it has also created inefficiencies and risks.
“Fragmentation means higher competition, higher operations & compliance costs, and challenges for smaller institutions,” said Sophoan. “Consolidation is a natural evolution. While the NBC’s $75 million capital requirement is a factor in the current structure, any changes would clearly shape how many players can remain viable.”
Despite these pressures, Sophoan believes competition still benefits consumers. “We don’t take a position on whether the capital requirement should increase, but in any market, healthy competition drives better services and lower costs.”
Cambodia’s removal from the Financial Action Task Force (FATF) grey list in 2023 marked a milestone for the banking sector. After years of enhanced monitoring, FATF recognized significant improvements in anti-money laundering and counter-terrorist financing measures.
“The NBC has done an excellent job in oversight, and the ABC works closely with them to maintain and enhance this progress,” Sophoan explained. “Being off the grey list restores credibility and positions Cambodia more strongly for international investment.”
ESG and Reputation
Globally, banks are under increasing pressure to integrate environmental, social, and governance (ESG) principles into their operations. In Cambodia, this remains a work in progress.
“Cambodian companies, not just banks, have generally been behind their international peers on ESG,” Sophoan admitted. “But interest is growing, especially as foreign-owned banks ensure their local operations align with global best practices. The ABC is driving this shift by promoting awareness and capacity building including changing the common misperception that the corporate social responsibility (CSR) and ESG are the same. ESG is much more broader and deeper encompassing environment, social and governance,.”
Recent initiatives include the Institute of Banking and Finance’s (IBF) Directorship Program, developed with the Singapore Institute of Directors. The program, launched in 2025, aims to elevate governance standards and prepare a new generation of leaders in Cambodia, especially in banking and financial services sector.
“This is about aligning with international standards,” said Sophoan. “Good governance is essential not only for attracting international capital but also for maintaining the sector’s credibility.” The board plays critical oversight role in this process.
At the same time, Sophoan highlighted the importance of better storytelling in the media. Cambodia’s banking sector is frequently targeted in international coverage over issues such as over-indebtedness and allegations of unethical lending practices. Sophoan stressed that while these concerns cannot be dismissed, both the banks and regulators are making serious efforts to address them.
“We recognize the narrative challenge,” he said. “That’s why the association, the banks, and the regulators are actively working to showcase the reforms underway and engage more constructively with international media. It’s important that the whole picture is told.”
This includes highlighting “good news” stories that often go under-reported. Digital banking adoption has accelerated dramatically, while financial inclusion has reached millions of Cambodians within just a decade. “These are significant achievements,” Sophoan said. “We must communicate them better, so investors and observers abroad understand not just the risks, but also the real progress happening in Cambodia’s financial sector.”
Guarding Against Reputation Risks
Like any industry, Cambodia’s banking system risks may arise by the actions of a few. Sophoan emphasized that the ABC takes this issue seriously. “Our job, working alongside the NBC, is to ensure that all members meet regulatory requirements and adhere to our code of ethics. A strong reputation is vital for the entire sector.”
Read More: Cambodian Banks Unite for Cybersecurity Day 2025 as Sector Strengthens Digital Defenses
Technology, AI, and the Future of Banking
Looking ahead, Sophoan sees technology as the defining factor for Cambodia’s financial sector. Artificial intelligence is already being used to replace repetitive roles in loan approvals and data analytics, while self-service banking infrastructure is growing in importance.
“This is a game changer,” Sophoan said. “AI will streamline risk management and customer onboarding and servicing. At the same time, we’re seeing a shift toward digital-first banking, with less reliance on physical branches beyond key flagship locations in Phnom Penh and other hubs.”
On digital assets, Sophoan is cautious. “For now, crypto and stablecoins remain in the sandbox. Regulators are rightly limiting direct bank involvement with crypto exchanges. Public awareness and trust are low, with many seeing crypto as volatile and open to scams. I don’t see that changing in the short term.”
Instead, he pointed to other innovations—open banking, regional payment connectivity, and green finance & new economies—as the real drivers of change in the next decade. “We will see more cross-border payment linkages within ASEAN, greater promotion of the riel, and increased financing opportunities tied to sustainability and new economies.”
A Sector at a Crossroads
Cambodia’s banking system has grown rapidly over the past two decades, contributing to financial inclusion and economic development. But with growth slowing and risks rising, the sector faces a critical juncture.
For Sophoan, the ABC’s role is clear: to help banks adapt, raise our business and governance standards to align with global standards and customer protection is an integrate part. “We are here to make sure our sector remains resilient, credible, and ready for the future,” he concluded.
