Cambodia has taken a new step to address rising financial pressure in its banking system. The National Bank of Cambodia recently introduced a legal framework allowing Asset Management Institutions (AMIs) to purchase distressed loans from banks and microfinance institutions. The policy comes at a time when Cambodia’s non-performing loan (NPL) ratio, according to ASEAN+3 Macroeconomic Research Office (AMRO), has reached around 8.1%, the highest level in roughly a decade.
At first glance, the policy seems straightforward. By allowing specialized asset managers to buy bad loans, banks can remove distressed assets from their balance sheets and regain their capacity to lend. However, the policy also raises deeper questions about why bad loans are increasing and whether the new framework addresses the root causes of the problem.
One structural factor behind rising NPLs is Cambodia’s credit boom over the past decade. From the early 2010s until the years before the pandemic, bank and microfinance lending expanded rapidly. This credit growth supported economic activity in sectors such as real estate, construction, and small household businesses. When economic conditions slowed during and after COVID-19, many borrowers faced declining income or stalled projects, making loan repayment more difficult. At the same time, slower property markets weakened the value of collateral that many loans depend on.
In this context, it shall be often watched several warning signals before financial stress develops into a crisis. The first is rapid credit growth followed by a slowdown, which Cambodia experienced after years of strong lending expansion. The second is a rise in non-performing loans, now visible in both banking and microfinance sectors. A third signal is pressure in asset markets, particularly real estate. Finally, regulators often introduce stabilization measures when financial risks begin to accumulate. The new framework for distressed-loan buyers reflects such a policy response.
However, rising NPLs do not automatically mean a banking crisis will occur. Several indicators suggest that Cambodia’s financial system still has important stabilizing factors. Banks continue to maintain strong financial buffers. In 2025, the capital adequacy ratio reached 21.9%, well above regulatory requirements, while liquidity levels remained high at around 177.3% for deposit-taking institutions.
These figures indicate that banks have sufficient capital to absorb potential losses and enough liquidity to meet depositor withdrawals. Deposits have also grown faster than credit, suggesting that public confidence in the banking system remains strong even as banks adopt a more cautious approach to lending. Cambodia’s financial system is also relatively simple compared with those of many advanced economies that rely heavily on complex financial instruments and highly interconnected institutions.
For this reason, current developments suggest that Cambodia is moving into a post-credit-boom adjustment phase, rather than experiencing a systemic banking crisis. The introduction of asset management institutions could help banks gradually clean up their balance sheets and manage distressed debt in a more orderly way.
Yet the policy alone may not fully solve the underlying problem. Asset managers can remove bad loans from banks, but they cannot eliminate the structural factors that created the debt buildup in the first place. There is also a longer-term concern about moral hazard. If banks believe distressed assets can eventually be transferred to external asset managers, they may have weaker incentives to carefully manage lending risks in the future.
Ultimately, the new framework reflects a financial system facing its first real test after years of rapid expansion. Whether it becomes a stabilizing tool or only a temporary solution will depend on how effectively Cambodia addresses the deeper economic forces behind rising debt.