Cambodia: Loan interest rates remain normal despite US Fed interest rate hike

The Association of Banks in Cambodia (ABC) and the Cambodia Microfinance  Association (CMA) have claimed that banks and microfinance in Cambodia continue to provide loans with the same interest rate, despite seeing less return as interest rates on international markets increase.

In early February 2023, the US Federal decided to raise interest rates by another 0.25 percent to 4.75 percent, putting pressure on banks and microfinance institutions, representatives from ABC and CMA said in a seminar held on Tuesday.

Over the past year, US interest rates have risen steadily, from 0.25 percent in early 2022, but from March 2022 to January 2023. The US dollar interest in international markets rose steadily, rising from 0.25 percent to 4.75 percent.

Rising interest rates have put a lot of pressure on economies in developing countries, said Rath Sophoan, vice president of the Association of Banks in Cambodia.

“Despite the high-interest rates in the international market and the high-interest rates of deposits in local banks,  banks continue to provide normal loans with a slight increase in interest rates compared with rising interest rates in international markets and savings rates locally,” Sophoan said in the seminar.

Acknowledging that the high-interest rate shaved the return of banks and MFIs, Sok Voeun, president of the Cambodia Microfinance Association said they do not increase interest rates to avoid impacts on customers.

“Maintaining the same interest rate has not yet caused microfinance institutions to suffer losses,” Voeun said.

The banking system has played an active role in supporting the economic recovery by continuing to provide appropriate financial services to meet economic needs, the National Bank of Cambodia said in a report.