Cambodia’s Banking Industry: Why Size Matters

• Cambodia’s banking sector has experienced rapid expansion, with the number of commercial banks reaching 59 as of December 2024. While this growth has significantly contributed to financial inclusion, it has also led to increased market fragmentation, operational inefficiencies, and heightened financial risks.

• In 2024, the Top 5 banks in Cambodia account for 49% of total banking assets, a decline from 52% in 2018, reflecting the rise of smaller competitors. However, many of these smaller banks face significant challenges related to cost efficiency, risk management, and sustainable growth. These challenges often arise from high loan-to-deposit ratios, reliance on external borrowing, and a rise in non-performing loans (NPLs). This report analyzes Cambodia’s banking sector, highlighting both its structural challenges and the strategic opportunity for consolidation to enhance efficiency, stability, and resilience.

• The primary objective of this report is to provide a data-driven analysis of the banking sector and to offer strategic recommendations to improve its structure and competitiveness. The insights are particularly relevant to:

- Banks: The report outlines how consolidation through mergers and acquisitions (M&A) can help banks optimize operations, achieve economies of scale, improve risk management, enhance financial stability, and increase profitability in the face of increasing market fragmentation.

- Relevant stakeholders: For NBC, the report highlights the risks associated with the fragmented banking system and provides recommendations to facilitate consolidation.

The report suggest how strategic policy adjustments—such as incentives for M&A and relaxed regulatory requirements during consolidation—could enhance financial stability, reduce systemic risk, and improve the overall health of the Cambodian banking sector.

• This report seeks to answer the following key questions:

✅ What are the risks and inefficiencies associated with a fragmented banking system?

✅ How does bank size influence financial stability, lending capacity, and cost efficiency?

✅ What lessons can Cambodia learn from global banking consolidation strategies?

✅ What policy measures and incentives can support responsible M&A in the sector?