In the first quarter of 2026, Cambodia’s financial system reached a tense breaking point, revealing a massive gap between attempts to guarantee stability and liquidity—through a joint publicity campaign by the National Bank of Cambodia (NBC), the Association of Banks in Cambodia (ABC), and the Cambodia Microfinance Association (CMA)—and the actual reality of a destabilized retail banking market.
This mismatch is clearly reflected in the surge of non-performing loans (NPLs) to their highest levels in a decade, combined with the collapse of Panda Commercial Bank and a crisis of confidence that led to a massive bank run at Asia-Pacific Development Bank (APD).
The current instability in the banking sector is the result of a combined impact: the downturn in the real estate sector and the geopolitical fallout caused by the 2025 border conflict with Thailand. Meanwhile, the governance framework under Hun Manet’s mandate has been criticized for focusing heavily on protecting elite networks rather than promoting transparent institutional reforms based on the true rule of law.
The Collapse of Panda Bank and the APD Crisis
The financial crisis in Cambodia reached a flashpoint on February 23, 2026, when the National Bank of Cambodia issued an urgent decision to suspend the operations of Panda Commercial Bank after finding its financial condition had deteriorated to the point of insolvency. Although Panda Bank accounted for only 0.77% of the total banking system at the end of 2025, its collapse severely impacted market confidence. The appointment of Morisonkak MKA Audit-Accounting Co., Ltd. as liquidators signaled that the central bank’s policy of ‘regulatory forbearance’—practiced during the pandemic and the property crisis—had come to an end.
Fear spread rapidly from Panda Bank to APD Bank in early March 2026, particularly after the bank announced a 5-day suspension of all deposits, withdrawals, and digital payments starting March 11, citing ‘system maintenance.’ This explanation failed to quell public suspicion and analyst concerns regarding liquidity or potential liquidation, sparking a massive bank run at the headquarters in Daun Penh district. Images of business owners and foreign investors attempting to withdraw millions of dollars only to be blocked became clear evidence reflecting the fragility of trust in the country’s 59 commercial banks.
Regarding the crisis at APD Bank, NBC Governor Chea Serey released a video message on March 16, explaining that the issue stemmed from public misunderstanding. Technically, she noted, banks do not hold cash reserves to pay all customers at once, as capital is utilized for long-term investments.
However, this explanation did not resolve concerns about the bank’s solvency, especially when services resumed the same day with a restriction on Bakong system transfers limited to $300 per person until March 20. This cash restriction, while intended to protect reserves, served as further confirmation that the bank was in a critical liquidity shortage.
Real Estate: The Burden on the Balance Sheet
The root of the current instability lies in the sharp decline of the construction and real estate sectors, which were once the engines of the economy. By mid-2025, the Non-Performing Loan (NPL) ratio across the sector jumped to 8.9%, the highest in 10 years, indicating a serious decline in asset quality. Analysts from S&P Global Ratings predict that the bad loan rate could rise to 19% by the end of 2026 due to the mismatch between an oversupply of luxury property and weakening domestic demand.
The real estate crisis poses a significant threat because 20% of total loans are directly linked to this sector, and real estate serves as the primary collateral for almost all loans. As property values dropped by an average of 3.6% in 2025, the protective value of collateral decreased, leaving banks stuck with illiquid assets and leading to a drop in sector-wide profitability to approximately 0.3% during 2025–2026.
To address this, the NBC established Asset Management Institutions (AMIs) in early 2025 to transfer toxic loans off bank balance sheets. However, economists warn of ‘moral hazard’ if these collateral buyouts occur at above-market prices, effectively serving as a hidden bailout for poorly managed institutions lacking transparency.
Governance and Elite Interests
Since August 2023, Hun Manet has attempted to build an image as a modern technocrat through the Pentagonal Strategy, focusing on digital transformation, human capital, and institutional reform. However, actual governance analysis shows a stark contradiction: the government’s ‘Vision 2030’ goals are being hindered by deep-rooted power structures that prioritize the interests and cohesion of the elite over genuine systemic transparency.
Cambodia’s political economy remains under the influence of networks between high-ranking officials, the military, and ‘Oknha’ (tycoons) who serve as the primary financial pillars for the Cambodian People’s Party (CPP), particularly during election campaigns. In exchange for this support, the Hun Manet government provides privileges such as legal protection, priority access to natural resources, and business immunity, leading to a state of ‘regulatory capture.’
In this context, institutions like the Anti-Corruption Unit (ACU) are seen as capable of acting only against low-level officials or government critics, while remaining blind to the immense, unexplained wealth of the power elite.
This governance structure has negatively impacted the banking sector, making Western investors hesitant due to systemic corruption and the favoring of companies linked to the ruling family. Notably, the 2025 World Justice Project Rule of Law Index ranked Cambodia 141st out of 143 countries. This figure reflects the general perception that the judiciary is merely a tool for the elite to facilitate asset seizures rather than an independent arbiter of justice.
Cyber Scams and Financial Blacklisting
The most serious challenge to Cambodian governance currently is the proliferation of massive online scam centers, estimated to generate between $12 billion and $19 billion annually—equivalent to roughly 60% of the national GDP. Although Hun Manet acknowledged the impact on investment reputation and pledged to shut these centers down by April 2026, critics believe previous crackdowns were merely performances for external optics.
According to United Nations investigative reports, approximately 150,000 people have been trafficked into forced labor within these scam centers, many of which are located on properties owned by powerful Cambodian elites. This situation has landed Cambodia on the blacklist of the 2025 U.S. Trafficking in Persons Report and triggered travel warnings from major nations. Furthermore, the banking sector faces high risks of money laundering, making relationships with international financial institutions increasingly complex and strained.
The Impact of the 2025 Border Conflict
The 2025 border conflict with Thailand also dealt a heavy blow to Cambodia’s macroeconomic stability and banking sector. The crisis led to the closure of major border crossings and forced the displacement of over 490,000 people, obstructing economic flow and adding pressure to the national financial system.
The most severe economic impact was the repatriation of Cambodian workers from Thailand. In 2024, approximately 1.2 million workers sent back about $2 billion to Cambodia, serving as a primary income source for rural families and a key source for debt repayment. By mid-2025, the return of nearly 1 million workers caused remittance flows to drop 37% to just $1.86 billion, creating an income crisis and a severe inability to service debt.
This income crisis directly affected the microfinance sector, which already faced worryingly high levels of private debt. The return of unemployed workers increased the demand for emergency loans while the ability to repay old debts plummeted. Despite NBC’s loan restructuring measures in December 2025, geopolitical expert Seng Vanly believes these measures have not been effective enough to prevent a wave of widespread land foreclosures in the provinces.
The conflict also severely disrupted supply chains. Since Cambodia relies on Thailand for 90% of its diesel and 80% of its gasoline, this threatened factory operations nationwide. The impact was felt heavily in industries tied to Cambodia-Thailand production networks, forcing a shift to sea and air routes that increased shipping costs by 30%. These rising costs squeezed profit margins in the garment and manufacturing sectors, which were already facing additional pressure from U.S. customs duties.
The Microfinance ‘Debt Trap’
While commercial banks face liquidity crises, the microfinance sector has been labeled by Human Rights Watch (HRW) as the ‘worst model’ of global small-scale credit. As of 2024, Cambodia had the highest per capita microfinance debt in the world, with 3.8 million households owing a total of over $18 billion. Most concerning is the average loan size of $5,800, which is more than four times the annual per capita income ($1,400)—an unsustainable financial ratio posing a grave risk to household economies.
HRW’s ‘Debt Traps’ report in September 2025 highlighted aggressive lending strategies by microfinance institutions (MFIs) in indigenous communities in Ratanakiri and the Northeast. Contrary to traditional microfinance principles focused on group lending, the Cambodian model has shifted toward profit maximization, requiring borrowers to pledge land titles as collateral, which has become the primary driver of land loss for community members.
This has led to severe social consequences, including forced sales of ancestral land, child labor, migration to dangerous jobs to meet installments, and household food insecurity caused by skipping meals to prioritize debt repayment—leaving children facing stunting and wasting.
Despite evidence of these abuses, international financial institutions and private investors continue to fund Cambodian MFIs, overlooking warnings from civil society. Specifically, the International Finance Corporation (IFC) has invested over $400 million in the last 10 years, contributing to a debt bubble that threatens social stability in rural areas.
Bakong and the Limits of Digital Modernization
In response to these issues, the NBC has aggressively promoted the ‘Bakong system,’ a blockchain-based platform aimed at modernizing finance and reducing dollarization. By mid-2025, Bakong linked 70 financial institutions and reached 34 million accounts. Remarkably, in 2024, the system processed total transactions of $147 billion—a massive figure equal to three times Cambodia’s GDP.
While Bakong is a success of digital integration, the 2026 APD Bank crisis revealed its flaws; the efficiency of instant transfers accelerated capital flight during the public panic. The NBC’s decision to limit transfers to $300 was a desperate measure to counter digital speed and preserve remaining cash. Furthermore, the fact that 87% of private debt is in U.S. dollars remains a barrier to the NBC’s ability to act as a ‘lender of last resort,’ as it cannot print the currency the market needs most during a crisis.
Quality of Investment and Fiscal Pressure
Although the Hun Manet government frequently cites record Foreign Direct Investment (FDI) figures to demonstrate investor confidence, the composition of that capital remains high-risk. In 2025, Cambodia approved 630 projects worth $10 billion (a 45% increase from the previous year). However, this growth hides concerns regarding capital quality and over-reliance on a single source of investment that offers little in the way of technology transfer or long-term labor skill development.
China remains Cambodia’s primary source of reserves, covering 53% of FDI in the first nine months and jumping to over 70% by the end of 2025. However, this flow is heavily concentrated in low-skill garments, infrastructure, and real estate, while high-quality investment from the U.S., Europe, and Japan remains minimal. In 2026, Cambodia is in a precarious position requiring urgent investment diversification—a difficult task as long as nepotism and systemic corruption remain the international perception.
Concurrent with the economic slowdown, the government’s fiscal position is under heavy pressure. The IMF forecasts the deficit will rise to 3.7% of GDP in 2025 and 3.8% in 2026 due to falling revenue collection and continued tax exemptions for the elite. To address this, the government has opted to cut social spending and end pandemic-era relief programs, measures that increase the risk for the poor who are already suffering from the border conflict, the property crash, and rising energy prices.
Seng Vanly noted that government fiscal policy is biased toward developers and creditors rather than the general population. While the NBC waived license fees for MFIs in border provinces, it failed to provide direct debt relief or repayment suspensions for borrowers in those areas. Furthermore, the extension of stamp duty exemptions on property transfers worth up to $210,000—a price level far beyond the reach of average citizens—is seen by Vanly as a strategy to protect the interests of ‘Oknha,’ hurting state revenue and social justice.
In 2026, Cambodia’s banking sector sits in a state of extremely fragile equilibrium, temporarily propped up by modern technology and regulatory leniency, yet facing threats from structural imbalances and a deep governance crisis. Despite industry attempts to claim resilience and liquidity, public trust continues to decline, filled with doubt following the collapse of Panda Bank and the withdrawal restrictions at APD Bank.
The roots of the current crisis are a blend of factors: the bursting of the real estate bubble, the disruption of deposit flows due to border conflict, and the pressure of tariffs and global trade restrictions due to blacklisting. However, the most critical factor remains the form of state management under the Hun Manet administration. As long as governance prioritizes the protection of illicit industries and a tycoon-based patronage economy, Cambodia will be unable to attract high-quality investment or build the independent institutions that are the foundation of long-term stability.
The economic outlook for 2026 and 2027 is projected by the World Bank and the IMF to be slow and ‘highly cautious.’ For the banking sector, the trend of consolidation will increase as smaller institutions lacking business diversity collapse under the pressure of NPLs and lost customer confidence. The fate of Cambodia’s ‘Vision 2030’ depends entirely on the Hun Manet administration’s ability to move from ‘political rhetoric’ to genuine reform to address the cycle of debt, corruption, and systemic vulnerability.
