Commercial Banks Betting on Real Estate Sector Boom: World Bank

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Commercial banks in the capital have capitalized on the real estate boom with real estate and construction loans accounting for over a third of their portfolios, according to a report released by the World Bank on Wednesday.

The percentage of real estate related loans is a sharp increase from the previous year and coincides with massive inflows of foreign direct investments mostly from China.

Amidst the regional economic slowdown forecast by the World Bank, the Kingdom’s real estate sector is expected to continue to expand with domestic and foreign direct investments.

While trade exports are projected to slow, the real estate sector continues to fuel the Kingdom’s financial services industry by being the biggest customers of their loan products. Real estate-related loans occupy the largest space in the commercial banks’ portfolios in the country.

“In June 2019, bank credit going to the combined construction, real estate and mortgage businesses captured the largest share, at 29.5 percent of the total $21.9 billion in bank credit provided to Cambodia’s nonfinancial sector,” stated the World Bank report.

Before the Global Financial Crisis ten years ago, the Kingdom’s construction sector’s credit reached only 23 percent at its peak.

By the first half of 2019, commercial banks in Phnom Penh provided an astounding $6.4 billion in loans for real estate-related businesses, ballooning the bank credit growth rate 40 percent, according to the World Bank report.

Moody’s Investors Service Inc. noted in its annual country credit report earlier this year that the Cambodian economy is on pace for steady growth mainly because of foreign direct investment from China into the real estate sector.

However, the report also warned that the banking sector’s reliance on the property sector may put the financial industry in peril if foreign investments into the kingdom dry up due to global economic volatility, specifically the US-China trade war and investor fears of an imminent global recession.

The World Bank’s Cambodia Economic Update, released on Wednesday, stated that the Asian region will decelerate due to the ongoing US-China trade war and disruptions to global value chains located in trade-dependent Asian economies. The report stated that the Cambodian economy is expected to cool next year but still remain one of the fastest growing countries in Asia.

“The economy is expected to decelerate gradually in the short to medium term,” stated the report.

“Growith is projected to ease to 7 percent in 2009, compared to 7.5 percent in 2018,” added the report.

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