Understanding Non-Performing Loan

Never before in the last fifteen years has the banking sector in Cambodia experienced a high non-performance loan (NPL) ratio. At the end of 2023, the NPL ratio stood at 5.4% and 6.5% in the banking and microfinance sectors, respectively, compared to an average NPL ratio of 2.18% between 2009 and 2022 (Chart 1). At the same time, as of February 2024, 133 of 2,070 accounts guaranteed by CGCC have become NPL, amounting to USD 9.76 million. The percentage of cumulative non-performing guaranteed amount over the guaranteed amount is 8.02%. Despite the challenging environment, NPL is manageable, and Cambodia’s banking sector remains resilient. Understanding NPL is critical to mitigating adverse impacts on borrowers, lenders, and the economy.

What is a Non-Performing Loan?

A non-performing loan occurs when the borrowers cannot fulfill their repayment obligations due to financial difficulty, i.e, late payments of more than 30 days for short-term loans, or more than 89 days for long-term loans. The criteria for classifying loan status are different from country to country. In Cambodia, the NBC classifies loans into five categories based on the number of days past due, as shown in Table 1 below. Loans under Normal and Special Mention are performing, while loans that fall under the Substandard or worse are considered non-performing.

Read more: Understanding Non-Performing Loan