Relief for banks as Cambodia sees 29% drop in loan restructuring

Relief for banks as Cambodia sees 29% drop in loan restructuring

A reduction in restructured loans typically implies that fewer borrowers are struggling to meet loan terms, a positive sign for financial stability.

In a sigh of relief, Cambodia’s banking sector recorded a significant 29 percent decline in loan restructuring between September and the end of December 2025, compared to the same period in the previous year.

According to a recent analysis by Phnom Penh-based investment advisory firm Mekong Strategic Capital (MSC), the drop in loan restructuring came despite mounting economic pressures—including border tensions with Thailand and tariff challenges with the United States—that have clouded growth prospects and strained parts of the domestic economy.

In the three months from September to November 2025, the decline in loan restructuring was even sharper with 42 percent, Stephen Higgins, Managing Partner of Mekong Strategic Capital, told Khmer Times. In December 2025, there was again a rise in restructured loans, partially offsetting the gains in the immediate earlier months.

The fall in restructurings reflects improving borrower conditions and tighter lending standards, as banks and regulators work to normalise credit quality following pandemic-era support measures.

After a period of elevated restructuring and debt forbearance — policies implemented during and immediately after COVID-19 to cushion borrowers — fewer borrowers required adjustments to repayment terms in the final quarter of 2025. This suggests a gradual recovery in parts of the economy and stronger repayment performance by some corporate and household borrowers.

Loan restructuring allows borrowers facing temporary financial stress to renegotiate repayment schedules with lenders. During the pandemic, National Bank of Cambodia (NBC) implemented broad forbearance measures that enabled banks to restructure loans without immediate penalties or forced reclassification as non-performing — a move designed to prevent a sudden surge in bad loan figures. However, as the economy stabilised and regulatory flexibility was scaled back, the volume of outstanding restructured loans naturally contracted.

According to the analysis by the Mekong Strategic Capital, loan restructures in Cambodia averaged $340 million per month in 2025. By the end of November 2025, loans in arrears (missing payment for 30 days or more or been restructured) stood at $10.8 billion or 17.6 percent of total loans, coming to 22 percent of the country’s GDP, indicating that one in six borrowers has defaulted.

Meanwhile, official annual data released by NBC recently recorded a modest expansion in overall credit in 2025. While loans in Cambodia’s banking system rose by 4.1 percent year-on-year to around $63 billion by the end of 2025, customers’ deposits surged by 14.7 percent to $65.7 billion, reflecting growing public confidence in financial institutions. Non-performing loans (NPLs) also increased, reaching 8.9 percent of total loans, up from 7.4 percent in 2024.

NBC Governor Chea Serey has maintained that Cambodia’s banking system remains resilient amid economic challenges, noting that strong liquidity and capital buffers have helped mitigate financial stress. The central bank’s prudent policies over the past two decades have been credited with helping the sector withstand external shocks while still supporting credit flows to businesses, particularly micro, small, and medium enterprises (MSMEs).

Economists say the drop in loan restructurings could signal two overlapping forces at work: improved debt servicing by borrowers as economic activity normalised, and a natural winding down of the extraordinary support measures that were necessary during COVID-19. A reduction in restructured loans typically implies that fewer borrowers are struggling to meet loan terms, a positive sign for financial stability.

However, the increase in NPLs over the years underscores ongoing risks within the credit portfolio — especially in sectors that remain under pressure, such as tourism and real estate. Independent analysts and regional observers have pointed to the continued need for robust risk assessment and stronger provisioning to guard against potential defaults.

The combination of strengthening regulatory oversight, growing deposits, and cautious lending practices could help sustain the stability of the banking system through 2026. Yet broader economic headwinds — both domestic and global — remain potential disruptors to the credit landscape in the months ahead.

khmertimeskh