Cambodia has seen a significant rise in its economic value throughout the past decade, but there is a potential threat that it has to watch out for. Negative interest rates are looming to enter Asian countries and are slowly creeping in from the European and Japanese economic policies and implementations from central banks.
This, Sing Capital’s Chief Executive Officer Alfred Chia, explains is a concept taken from the Swiss government when it was fending off a crisis back in 1970. This was a statement he made during the Inaugural Cambodia Property Show held in Singapore this year.What is a Negative Interest Rate?
Negative would seem like an odd usage when used in combination with the term “interest rate.” But this has been a concept embraced by countries whose economies are coming into a desperate state. Chia explains the concept as something that goes against what we’ve been taught. Whereas banks are supposed to pay us an interest when we decide to put a deposit, the concept of negative interest rates works the other way around. Banks actually charge you the interest for putting money in their care.
This should come as no surprise, but it is definitely an “unconventional” concept, according to Chia. Probably something that we usually take for granted is that banks are still business entities and still have to earn.Why are more countries adopting Negative Interest Rates?
He continues to state that there are five main factors affecting why more and more countries are slowly adopting this unusual concept. These factors are Global GDP, China-economy affects, oil & commodities, currency, and interest rates; and these are all interconnected.
Since there is a downturn in the global economy right now, we find that countries like China are slowly experiencing the effects through the apparitions of its ghost towns which were once vibrant communities for industrial workers and their families. Having said this, we also see the appreciation and depreciation of major currencies like the US dollar which serves as Cambodia’s main currency.How might this affect Cambodia?
What will most likely affect the growth of Cambodia is either the strengthening or weakening of the US dollar, and the Chinese business behavior during this time since the Chinese are also one of the major investors in Cambodia.
Though perceived to be signs of a struggle, the aim of negative interest rates is to force banks, businesses and individuals to be creative with how they can make their money grow. Banks seem to have found a means through lending out.
And, according to Chia, banks have seemed to found a sort of reprieve through the property market. He uses Japan as an example where its people are able to loan up to 100 percent of the property value at just a 1 percent per annum interest rate. With proper valuation, lending out lessens the risk for them because even if the loan is not paid back, they still have the property itself to fall back on.
Should this concept apply for Cambodia, banks may actually be able to profit more due to the booming real estate industry.Learn more about the Cambodia investment climate!