Control Credit, Says Moody's

KHMER TIMES
MAY KUNMAKARA

Moody’s gave Cambodia a B2 rating this year and warned that the country’s credit growth could get out of control. Reuters

While Cambodia’s Moody’s rating is still at the same B2 level as last year, its economic growth has been downgraded two points from 2015, with the international credit rating agency warning that the Kingdom’s rapid pace of credit growth could pose financial stability risks.

“The pace of increase in overall credit, and the risks associated with speculative real estate activity in some markets, point to probability of a boom-bust cycle – which would have severe effects on the economy and banking system – despite the central bank having implemented measures to curb growth in bank loans,” the Moody’s press release said yesterday.

The international credit rating agency gave Cambodia a B2 rating this year ‒ same as last year’s rating ‒ and said government debt was under control.

According to Moody’s, a B2 rating is judged by the international agency “as being speculative and a high credit risk.” Moody’s Investors Service plays a key role in global capital markets as a supplementary credit analysis provider for banks and other financial institutions in assessing the credit risk of particular countries.

The international ratings agency pointed out that Cambodia’s robust GDP growth in recent years had been accompanied by rapid credit growth. Total bank credit, it said, increased by 23.4 percent in 2015, slower than in the previous three years, but still outpacing nominal GDP growth.

“About one fifth of bank credit is absorbed by construction, real estate and mortgages,” the Moody’s press release pointed out.

According Moody’s, Cambodia’s real economic growth in 2016 will edge lower, to 6.8 percent after seven percent in 2015 due to slower growth of Chinese economy this year.

It pointed that the Kingdom’s garment and tourism sectors ‒ key drivers of country’s growth ‒ face headwinds from lackluster global demand.

“Slowing growth in China will also have negative implications for Cambodia’s economy, given China’s importance as a source of investment, trade, and concessional loans,” said the Moody’s press release.

In Channy, president and group managing director of Acleda Bank, tried to play down Moody’s assessment that Cambodia’s credit growth was too fast and could pose a risk to the financial sector.

Mr. Channy said the Kingdom’s central bank ‒ the National Bank of Cambodia ‒ had issued new prakas or regulations on the minimal capital requirements for banks, financial institutions and micro-finance institutions, and also on liquidity coverage ratios.

“These two prakas will help slow down loan growth, keeping the country’s credit growth under control,” he said. “This is totally opposite to what Moody’s is saying.”

Commenting on Moody’s warning, Stephen Higgins, managing partner of Mekong Strategic Partners, said a slower rate of credit growth would be good for the country.

“If it’s too high, it needs to slow down,” he said. “I think everyone would agree that a slower rate of credit growth would be a good thing.”