Spike in small business loan demand in Q3
Spike in small business loan demand in Q3
Recent reports from the Credit Bureau Cambodia (CBC) present a mixed picture of Cambodia’s credit market in Q3 2024, which ended September 30, 2024.
While small business loan applications are on the rise in Q3 after contracting in Q2 of this year, late payment ratios (DPD+30) have risen alongside a continued lag in the Kingdom’s construction sector.
The findings were highlighted in the CBC’s ‘Retail Credit Index’ and ‘Small Business Index Reports of Q3 2024’ which examined finance market trends across different sectors and regions of Cambodia, including plateau, coastal, plains and the Tonle Sap regions.
The CBC is Cambodia’s central provider of financial information and credit reporting services to financial institutions and consumers nationwide.
Alongside broadly positive signs for the Cambodian economy, including strong gross domestic product (GDP) growth forecasts and significant foreign direct investment (FDI) boosts throughout the year, demand for credit has demonstrated some forward momentum as of Q3.
The CBC’s latest data shows that small business loan enquiries increased six percent in Q3, following a seven percent contraction in Q2.
Total credit requested stood at $12.6 billion nationwide.
Fuelling the Q3 growth, the CBC reported contracts in working capital applications increasing by over 20 percent quarter-on-quarter, and asset finance up 14.4 percent quarter-on-quarter.
According to the report, most of the financing enquiries related to enterprises in Cambodia’s southern provinces, including Koh Kong, Sihanoukville, Kampot and Kep, along with agricultural business investments in various regions.
The data however is related to demand for working capital, and thus not all applications will ultimately be approved by financial institutions.
Alongside this positive growth in working capital applications, the CBC also recorded considerable slowdowns in credit applications for the construction and agricultural sectors, compared to Q2 of this year.
Construction applications decreased by 16.3 percent in Q3, and agriculture applications witnessed a 20.8 percent drop compared to the previous quarter.
While some positive growth in working capital applications is visible in the CBC’s latest findings, demand for credit in Q3 2024 remains lower than witnessed in the same period in 2023, during which period applications expanded 12.3 percent.
Small business credit performance dropped slightly in the latest quarter, with overall loan accounts decreasing by 0.5 percent in Q3 compared to Q2, totalling 1.9 million accounts nationwide.
Meanwhile, outstanding loan balance for Q3 increased a marginal 1.4 percent to $34.7 billion.
Notably, working capital made up 67 percent of this loan balance, agriculture equated to 10.7 percent, and asset finance represented 7.4 percent.
Suggesting some ongoing fragility in the Kingdom’s consumer credit market, the CBC data for Q3 also demonstrated that 30 days past their due date (DPD30+) loan ratio has increased in the latest quarter compared to Q2.
In Q3 2024, DPD30+ ratio increased for all significant small business credit products, rising to 9 percent in Q3, up from 8.6 percent in the Q2.
Loans related to construction activities demonstrated the sharpest increase in DPD30+ ratio, according to the CBC’s Q3 findings, in both the small business loans sub-sector and within industry levels.
Construction loan DPD30+ reached a new high of 20 percent in Q3.
This trend has been ongoing throughout 2024, alongside a flat construction sector.
The non-performing loan (NPL) ratio for real estate has also risen compared to 2023, the sector facing oversupply due to a glut of unsold inventory in all segments including condominium, borey and other real estate types, low demand from investors and difficult conditions for property related lending.
A slow down in credit applications for construction and property activities was also evidenced in CBRE Cambodia’s ‘Phnom Penh Market Insights Q3 2024 Report’ released earlier this month.
According to the real estate consultancy, Phnom Penh’s property sector saw few new launches this year compared to years passed, which CBRE noted is expected to continue to slow market supply growth.
The landed property segment dropped to around 5 new project launches in Q1-Q3 2024, despite boasting almost 90 new landed development projects per year in previous periods of 2019-2022.
In the condominium segment, which is uniquely open to foreign investment, there were only around 5 new projects launched in 2024, following condominium market peaks in 2015 and 2019 which saw 40 and 33 new launches per year, respectively.
Following 2019, the high rise market has witnessed slowing new supply of projects in all following years, as well as dropping sale prices.
CBRE also reported that in the commercial building sector, no new strata titled office developments have been launched in the last two years.
This suggests a significant cooling off period for the residential and commercial construction sector.
Kinkesa Kim, Managing Director of CBRE Cambodia, commented that this stark drop in supply throughout the property sector is in many ways a sign of an ongoing market correction.
She said that given that previously there has been an oversupply of property entering the Phnom Penh market, subduing both occupancy and rental rates for owners, the slowdown now becoming apparent across the market should lead to a market correction whereby occupancy of existing property can increase, along with demand for rentals and resale properties.
