VZCZCXRO1894
RR RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHPF #0205/01 0860958
ZNR UUUUU ZZH
R 270958Z MAR 09
FM AMEMBASSY PHNOM PENH
TO RUEHC/SECSTATE WASHDC 0552
INFO RUCNASE/ASEAN MEMBER COLLECTIVE

UNCLAS SECTION 01 OF 02 PHNOM PENH 000205 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/MLS 
STATE PASS TO USTR - BISBEE 
HANOI PASS TO TREASURY - MULLINAX 
 
E.O. 12958: N/A 
TAGS: ECON EFIN PGOV EINV CB
SUBJECT: U.S. BUSINESSES CONCERNED ABOUT FINANCIAL, NOT POLITICAL, 
STABILITY IN CAMBODIA 
 
REF: 08 PHNOM PENH 851 
 
SENSITIVE BUT UNCLASSIFIED 
 
¶1. (SBU) Summary and Comment.  The future stability of the Cambodian 
financial sector was foremost on the minds of U.S. business 
representatives during a monthly AmCham breakfast meeting hosted by 
the Ambassador March 26.  Not dissimilar to problems in the U.S., 
turmoil in the real estate market, coupled with the economic 
slowdown, threatens to reveal vulnerabilities in the banking sector. 
 Non-performing loans are believed to have been underreported in the 
past; the economic slowdown and falling property prices increases 
the risk of these non-performing loans.  However, despite their 
concerns over banking sector weaknesses and the availability of 
credit, the AmCham members rejected predictions that Cambodia was at 
significant risk of political instability.  End Summary and Comment. 
 
 
Rapid Credit Growth Linked to Real Estate Worrying 
--------------------------------------------- ----- 
 
¶2. (SBU) During a March 26 breakfast meeting with the Ambassador, 
AmCham members expressed growing concern about the health of 
Cambodia's financial sector.  The banking sector has experienced 
robust growth over the past few years, with the number of banking 
and financial institutions increasing rapidly (Ref A).  According to 
the IMF, credit growth grew by over 100 percent year on year in 
mid-2008, and is estimated to have slowed to 60 percent by the end 
of last year.  The IMF and others have expressed concern about the 
ability of the National Bank of Cambodia to keep pace with and 
provide adequate supervision to the expanding sector. 
 
¶3. (SBU) Michael Stephen, Chairman of the Mekong Bank, warned that, 
during a period of over-exuberant lending in the past, the rapidly 
growing economy may have masked questionable lending practices which 
could now pose significant risks for the banking sector.  Several 
AmCham members highlighted the linkage between the real estate 
market and banks' lending practices as contributing to the risk of 
increasing non-performing loans in banks' portfolios.  Despite 
urging to the contrary by the National Bank of Cambodia, commercial 
banks continued to issue loans heavily backed by real estate assets 
as collateral.  (Note:  According to the National Bank of Cambodia, 
real estate lending amounted to seven percent of total lending in 
2008, however, the construction sector received eight percent of all 
loans, and an additional seven percent of loans were made to 
individuals purchasing property.  End Note.) 
 
¶4. (SBU) Cambodians (and foreign partners) seeking to make a quick 
buck by purchasing properties with the intention of flipping them 
for a significant profit, helped to fuel the recent real estate 
boom.  However, the real estate market has been stagnant since 
mid-2008 and property prices have fallen, leaving many indebted 
speculators holding properties significantly below their expected 
value. 
 
¶5. (SBU) Several AmCham members explained the difficulty in 
assessing the current true value of the real estate market.  Even in 
the best of times, appraisal of real estate assets was difficult 
given the lack of reliable market information.  However, now that 
real estate transactions have ground to a halt, and in the absence 
of sales, it is even more difficult to assess the true value of a 
property.  Other than real estate, there are few other forms of 
eligible collateral. 
 
¶6. (SBU) Another American businessman reported that several 
financial institutions recently informed him that they were 
considering a moratorium on lending for the time being, given the 
slowing economy and growing concerns about appraising real estate 
collateral and the ability of debtors to repay. 
 
Doubt Findings on "Political Instability" in Cambodia 
--------------------------------------------- -------- 
 
¶7. (SBU) The AmCham members had a strong reaction to the recent 
Economist Intelligence Unit's recent Political Instability Index, 
which ranked Cambodia as the fourth most at-risk country in the 
world (tied with Sudan, and below Zimbabwe, Chad, and the Democratic 
Republic of Congo).  The index listed Cambodia as more at risk of 
political instability than Iraq or Afghanistan. 
 
¶8. (SBU) The U.S. business representatives rejected the findings as 
out of touch and exaggerated, and questioned the methodology used to 
determine a country's vulnerability to social unrest.  The 
Ambassador agreed that the assessment seemed to overstate the risk 
of social unrest in Cambodia relative to the rest of the world and 
noted that the report provided scant information as to what factors 
lead to finding Cambodia as being at "very high risk" of political 
 
PHNOM PENH 00000205  002 OF 002 
 
 
instability.  One AmCham member remarked to the Ambassador that the 
Economist Group's "parachutist approach" to coverage of Cambodia has 
routinely resulted in poorly informed and at times erroneous 
articles about developments in Cambodia. 
 
RODLEY