Call for Commercial Court in Cambodia to Address $5 Billion in Distressed Assets

Cambodia's business sector is increasingly vocal about the need for a specialized Commercial Court and a modern bankruptcy framework, aiming to resolve over $5 billion in distressed assets. This call was a central theme during the International Business Chamber (IBC) Regular General Meeting held at Shangri-La Phnom Penh, where participants discussed how to improve commercial dispute resolution and access to finance.

According to the National Bank of Cambodia (NBC), the banking sector's non-performing loan (NPL) ratio has risen to 9.6%, compared with 8.4% in June 2025. This increase reflects the pressures on borrowers amid a cooling property market, which has seen asset values decline since the peak of the real estate boom in 2019. The NBC reported that outstanding loans reached $64.2 billion, marking a 4.6% year-on-year increase, yet the rising NPLs indicate growing challenges for lenders.

“The lengthy enforcement periods reduce incentives for borrowers to resolve their debts quickly while preventing banks from recovering capital.”Panelist, IBC Meeting

Panelists at the IBC meeting highlighted that the current legal process for recovering collateral can take between five to seven years after a borrower defaults. During this lengthy period, significant capital remains tied up in unresolved legal proceedings, preventing it from being reinvested into the economy. Industry experts estimate that the ongoing legal disputes contribute to the stagnation of around $5 billion in distressed assets, primarily linked to the property sector.

One of the primary obstacles to resolving distressed loans is the mismatch between borrower expectations and current market conditions. Many property owners continue to value their assets based on pre-COVID-19 prices, leading to stalled negotiations with lenders who are forced to adjust to the new market realities. This disconnect has resulted in prolonged court proceedings and delayed asset sales, further exacerbating the issue of idle capital within the financial system.

Moreover, the panelists raised concerns about the moral hazard in the lending system, where defaulting borrowers can occupy or use secured properties for years while their cases linger in court. This situation diminishes the urgency for borrowers to settle their debts and hampers banks' ability to recover capital for new lending.

“Without modernizing the current bankruptcy legislation, many distressed borrowers remain trapped in lengthy legal disputes.”Panelist, IBC Meeting

While there is broad support for establishing a specialized Commercial Court, participants emphasized that judicial reform should be accompanied by comprehensive personal and corporate bankruptcy legislation. Such laws would provide a structured process for financially distressed individuals and businesses to either restructure or declare bankruptcy, offering greater certainty for lenders seeking to recover assets.

As part of the ongoing efforts to address the issue, the National Bank of Cambodia issued the Prakas on Conditions for Asset Management Institutions (AMIs), creating a framework for licensed institutions to manage and resolve non-performing loans. However, participants argued that without a robust legal system capable of enforcing creditor rights, the AMI framework alone may not achieve its goals.

“We can draw on established regional models rather than designing an entirely new framework.”Panelist, IBC Meeting

Looking to regional examples, panelists noted Thailand's establishment of its Central Bankruptcy Court in 1999 as a model to accelerate corporate restructurings and resolve distressed assets. Vietnam has similarly developed specialized legal procedures for commercial insolvencies. Participants suggested that Cambodia could adapt these existing frameworks rather than creating an entirely new system.

To bolster confidence in the early years of implementation, some panelists proposed involving experienced international commercial judges to mentor Cambodian judges, thereby enhancing specialist expertise and reassuring foreign investors. The recommendations from the IBC meeting will be forwarded to Working Group D and later presented at the Government-Private Sector Forum chaired by Prime Minister Hun Manet, where business leaders hope to prioritize commercial legal reform as a national economic agenda.