Cambodia banks hit by severe loan crisis

Cambodia’s banking sector faces its most severe loan crisis in a decade. A stagnant property market and U.S. sanctions strain a financial system heavily reliant on the U.S. dollar.

The gross non-performing loan ratio reached 8.6% in 2025, marking the highest level in ten years. Analysts predict this figure will surpass 10% in 2026. Commercial banks reported bad loans rising to 8.3% from 7.2% the previous year, fueled by energy price increases that squeezed households and exporters.

Real estate slowdown weighs on lenders

The downturn stems from real estate. Sector growth slowed to 0.5% in 2025, while average property prices dropped 3.6%, ending a period of rapid expansion. By mid-2025, Phnom Penh had completed 590 gated housing projects, though 133 remained unfinished and 35 were postponed as developers adjusted to weaker demand.

Some projects collapsed after developers went bankrupt, leaving buyers with undeveloped land. About 9% of $5.7 billion in restructured loans—approximately $1.9 billion—were rescheduled to prevent further losses. Small-business loans, totaling $37 billion, saw 7.1% fall more than 90 days past due, with construction and working-capital lending suffering the most.

National Bank of Cambodia Governor Chea Serey stated that lending growth remained weak in the first half of 2025, increasing only 2.9% due to sluggish demand, especially in real estate, and stricter lending criteria.

Sanctions and reputational damage

The sector’s challenges go beyond bad loans. In October 2025, the U.S. Treasury’s Office of Foreign Assets Control designated the Prince Group as a transnational criminal organization, citing over $16 billion in losses to U.S. victims. Prince Bank Plc, connected to the group’s chairman, Chen Zhi, was sanctioned, and Chen later lost his Cambodian citizenship.

The central bank liquidated three banks—CCU Commercial Bank, Heng Feng Cambodia Bank, and HH Bank—after their executives were sanctioned for alleged ties to cyber scams and money laundering. These institutions held just 0.5% of banking assets, but 23 banks have entered liquidation since 2020 as part of a broader cleanup effort.

Huione Pay, a subsidiary of Huione Group, lost its license and was barred from the U.S. financial system after being linked to laundering more than $4 billion. The company later rebranded as H-Pay. The turmoil led to unfounded rumors that the U.S. had frozen funds in local banks, though banking associations later dismissed these claims.

The core banking system remains stable despite the headlines. The sector’s capital adequacy ratio stands at 22.3%, among the highest in Southeast Asia, while net non-performing loans were kept near 2.4%, with provisions covering about 70% of bad loans.

Microfinance, a key part of Cambodian credit, expanded in 2025. Outstanding loans exceeded $6 billion, up more than 15%, serving 1.53 million borrowers, primarily women. However, non-performing loans in this segment remain high at nearly 15%.

Capital markets lag behind. The Cambodia Securities Exchange, partly owned by the Korea Exchange, saw trading value rise over 90% year-on-year in the first half of 2026, though it serves fewer than 6,000 active investors. In insurance, Forte Insurance leads the general market with a 44% share.

Foreign reserves totaled $25.3 billion in mid-2026, sufficient for eight months of imports. The Asian Development Bank approved a $250 million loan to help households cope with fuel price shocks. So far, the country’s banks have avoided a systemic crisis despite the property downturn and sanctions.

The focus now shifts to reducing bad loans before another shock occurs. Phnom Penh must also demonstrate to Washington that its financial system is no longer a haven for illicit activity. Expanded capital gains exclusions in other markets have shown how regulatory changes can stabilize housing demand, though Cambodia’s path remains uncertain.