The upcoming general election next July could have a ripple effect on the country’s financial sector, though not big, according to research firm Mekong Strategic Partners.
“While it is difficult to predict what impact the upcoming 2018 election will have on the Cambodian finance sector, the experience of the 2013 election is instructive,” said Mekong Strategic Partners in its latest banking review report. The 2013 general election was held on 28 July and the ruling CPP won 68 seats to the opposition CNRP’s 55.
In 2013, the research firm’s report pointed out that outstanding bank loans grew by 26 percent. “While there was an apparent sharp fall in July  of 7 percent, this appears to have been a normalising of a very unusual 13 percent growth in the prior month,” stated the report.
The report added that bank deposits grew by 12 percent in 2013 and in the first six months of the year, deposits were up by 10 percent and were on track to exceed 20 percent by the year’s end. “However in July and August, balances fell 10 percent, back to where they were at the start of the year before recovering by December,” said Mekong Strategic Partners.
Stephen Higgins, managing partner of the research firm, told Khmer Times yesterday that the country’s finance sector could be impacted slightly by the upcoming general election but added that “it would not be a big shock to the industry”.
“While some large projects may be put on hold until after the election, many projects are multi-year ones already underway,” said Higgins. “For most businesses, commercial life will continue on largely as normal, and they’ll need financing for their businesses regardless of the election, unless you think there will be a major economic slowdown.”
“In terms of our expectations, the key words are ‘material impact’ – we do think there will be some impact and that loan growth will slow, we just think it is likely to be a few percentage points rather than say a 10 percent impact.”
Bun Mony, former president of the Cambodia Microfinance Association and chairman of the board of the newly-established Vithey Microfinance, agreed that the upcoming general election could have an impact on the growth of the financial sector.
“We see that the growth of the industry has been moderated so far. And, of course, whether or not, the upcoming election will have an effect on the growth of investment and business has yet to be seen,” said Mony. “Based on previous experience, we have to wait for the upcoming election period to finish.”
According to the Mekong Strategic Partners report, MFI loans grew by an astounding 48 percent in 2013. “The only noticeable election impact was a fall of just 1 percent in August following the election, which was quickly recovered in September,” stated the report.
The report also pointed out that monthly deposit numbers were not available for MFIs in 2013. “However anecdotal evidence from the time suggested that MFIs did see an outflow of deposits over the election period,” it said. “Deposits will be impacted, however we expect the banks will be holding additional liquidity in the lead up to [the July 2018 elections] to help absorb this.”
This article was originally published in the Khmer Times.