Raymond Sia
As a sequel & follow-up to the March 2026 article, Part II provides an outlook of the Cambodian Banking sector for the remaining months of 2026.
Read More: Opinion – Who’s Gonna Ride Your Wild Horses? (Part I – Banking)
There are a number of provisos on this outlook and one key assumption is a commonly used Latin phrase in economics & science – “ceteris paribus” i.e. that there are no new surprises in domestic & global economic conditions.
To re-cap from Part I, year 2026 has started-off very much similar to the anticipated traits of the Chinese zodiac of the “Fire Horse”, where it is expected there will be a lot action, disruption and unpredictability.
The first 3 months of 2026 has not been the best start for many countries. Headwinds that were faced in 2025 continue to persist in the new year and this has been compounded with the on-going Middle East War which further adds more inflationary pressure and Cambodia; being an open economy and business friendly Kingdom is not excluded from this confluence of headwinds.
Non-Performing Loans (“NPL”)
The Cambodian banking industry has been experiencing elevated NPL position for the past 2 years.
“Upward trajectory” & “pressure on asset quality” are some of the views on the current NPL situation from my conversation in recent times with a number of commercial bank CEOs and Deputy CEOs. Their views are certainly validated; more so amidst the current unfortunate Middle East war which has caused an oil supply-crisis and high oil price in almost every country globally; including Cambodia. High oil prices will have a negative impact on inflation and overall cost-of-living and this may result in customers facing challenges with their debt obligations/ repayment.
Are we at the peak of this NPL cycle or is the worse yet to-come?
Every banker & banking analyst will have differing views; and while the answer to this question is important, what is more pertinent is what should be done to resolve this NPL issue in-hand.
It is encouraging to see the Regulators acknowledging and acting on this important matter by having new regulation that allows the setting-up of a Financial Asset Management Institution (“FAMI”).
The market has high anticipation and we hope the newly approved FAMI model will help alleviate the NPL issues.
There are some notable differences in Cambodia’s FAMI model as compared to other countries in the region such as ownership structure and tenor of the license. Other regional FAMIs are mainly Government-owned to avoid potential private sector conflict of interest and considering most NPL restructuring and resolution will take time, there is no finite tenor on the validity of the license.
Despite the elevated NPL situation, the industry data continues to reflect strength with total capital adequacy ratio and liquidity coverage ratio of 22% and 181.3% respectively (source: National Bank of Cambodia Annual Supervision Report 2025).
While it is encouraging to see resiliency in the industry data, we have to all remain vigilant and not be complacent as we are all mindful (from experiences seen in many countries) that liquidity can be depleted very quickly in this digital age and capital is a scarce commodity.
Profitability
Based on the National Bank of Cambodia Annual Supervision Report 2025, 13 commercial banks reported losses for FYE 2025.
Banking sector’s profitability is driven mainly by its interest and non-interest income and managing on its expenses.
In Cambodia, a substantial part of the banking revenue (which would translate into profitability) is derived from lending activities. Interest income from loans constitute at least 70%-80% of many banks’ revenue. While non-interest income or fee income is growing, it is unlikely to surpass the revenue contribution from lending activities in the near term.
With this in-mind, we do not need to be a rocket scientist to deduce that if lending activities remain muted, there will be detrimental impact of banks’ profitability.
The past 2 years have seen challenging for many banks to grow their loan book aggressive due to both “demand and supply” constraints. Banks are generally more cautious (for the right reasons) considering the persistent elevated NPL situation the past 2 years.
We are likely to continue to see some banks reporting losses for FYE 2026.
There are many reasons behind this expectation; which includes; higher provisioning for NPLs, muted lending growth and we still have many banks that have just started operations less than 5 years ago and would require time to achieve breakeven.
Mergers & Acquisitions (“M&A”)
The banking industry in Cambodia is fragmented with many players. In August 2024 Right Angle article; “Do we need more commercial banks in Cambodia?”. I had provided 3 different vantage points and have left it to the wisdom of the readers to deduce and make their own conclusion.
Irrespective on how one views the current banking landscape, there are opportunities to be seized.
According to the investment guru – Warren Buffett; there are only 2 emotions that drives an investor; that being “greed & fear”. His mantra of “Be fearful when others are greedy and be greedy when others are fearful” reminds investors to always prioritize longer term outlook and having emotional discipline at all times irrespective how (irrational) markets could be behaving.
If one views the current industry situation as “a glass half empty”, this would be an opportune time to go on an acquisition mode since we are confident the Kingdom business environment will remain “open and business-friendly” with the backing of a pragmatic & supportive authorities and regulators.
On the flip side, if one were to take the view of “a glass half full”, this would be a good time to double-down on the needed investments in both hardware (especially technology) and software; which includes people development & training. I am always a firm believer that people drive the business and leadership is such a critical success factor for any banks (and any organization).
Merger options could also be a strong possibility considering we have many strong and reputable shareholders behind a number of banks today.
A good financial track record; which helps build trust with the customers, community and country is important for any bank.
This “trust” is priceless and cannot be taken for granted and need to be guarded & protected closely; and the best way to showcase this is by ensuring strong & balanced financial performance backed by an experienced and credible management team.
Raymond Sia currently serves as Managing Director of Canadia Investment Holding Plc and Board Director for Canadia Bank and Credit Bureau Cambodia. Raymond is a firm believer of Responsible Banking; which requires adequate financial literacy before financial access is provided. He is also the author of the “Right Angle – The Collection Volume One” which is available for sale. The views expressed above are strictly the author’s personal opinion and do not represent the organisations & institutions he is attached with or represents.
