Financial Crime World

Cambodia’s Banking Regulations Receive Major Updates in 2023 Amidst Real Estate Downturn and Shadow Banking Concerns

Background

The Kingdom of Cambodia has been experiencing a decline in its real estate market since late 2022, with total investment capital in construction projects falling to USD 2.97 billion in 2022 from USD 7.75 billion and USD 5.33 billion in 2020 and 2021 respectively.

The Impact on the Real Estate Market

  • Total investment capital in construction projects has decreased significantly
  • Oversupply of high-end properties has led to declining property prices and increased discounts offered by developers

Shadow Banking Concerns

  • Shadow banking activities, which involve lending outside of the National Bank of Cambodia’s supervision, have raised concerns over the country’s financial stability
  • Estimates suggest that shadow banking accounts for 60-70 percent of GDP
  • Lack of regulation in this sector has led to disputes between developers and homebuyers, as well as potential liquidity shortages and default risks

Policy Measures Introduced by Authorities

To address these concerns, the authorities have introduced several policy measures aimed at strengthening oversight and regulatory compliance:

  • Streamlining licensing processes for real estate development
  • Setting borrowing limits for homebuyers and developers
  • Drafting more detailed legal procedures for dispute resolution over property ownership
  • Strengthening financial reporting requirements through on-site supervision and auditing of developers
  • Establishing a centralized data management system for the real estate sector

Expert Insights

“Concerted efforts across regulatory bodies will be crucial in ensuring the successful implementation of these policy measures,” said an expert. “The updates aim to address the dual challenges of a weakened real estate sector and growing financial distress in shadow banking activities, which can affect Cambodia’s financial stability.”

Expected Outcomes

The new regulations are expected to provide a more stable environment for the country’s real estate market and financial system, allowing developers and homebuyers to operate with greater confidence.