Banking in Cambodia
A personal overview by John Brinsden OBE
Source www.investincambodia.com/banking.htm
Timeline
1975: The Khmer Rouge take control of Cambodia. Money is abolished and all banks are closed.
1979: After the Khmer Rouge are forced out, the new government establishes the National Bank of Cambodia (NBC) as the central bank and the Foreign Trade Bank as a wholly-owned subsidiary of the NBC to provide commercial banking services. Cambodia’s new currency, the Riel, is introduced in 1980.
1992–1998: The first privately owned commercial banks and foreign bank branches/subsidiaries start to reappear initially with the requirement that the minimum capital should be $5 million and the NBC should have a 15 per cent stake. By 1998 there were 32 licenced commercial banks most of which were small local institutions with some foreign private investors.
1998–2001: Major reforms to the banking system introduced under new Governor H.E. Chea Chanto. New banking law classifies financial institutions into three categories: i) Full Commercial Banks with a minimum paid-up capital of $13 million, ii) Specialised Banks – minimum paid-up capital of $2.5 million, and licenced/registered Microfinance Institutions (MFIs). Banks are allowed two years to conform. The number of Commercial Banks halves to 16. The requirement for 15 per cent participation by the NBC is abolished.
2002–Present: Reform process continues: the banking system initially suffers from over-liquidity and lack of quality borrowers. New banks arrive with foreign investors particularly from Australia, Korea and Japan.
The Foreign Trade Bank is privatised. The number of licenced Commercial Banks grows to 24. In the face of inflationary pressures and a sharp increase in credit in 2008 the NBC introduces measures to reduce liquidity and raises the minimum capital requirement for Commercial Banks to $37.5 million (unless they have an ‘A’ rated, or above, ‘influential’ (see note 1) foreign bank as a shareholder). All banks must conform by no later than the end of 2010.
It can thus be argued that the modern banking system in Cambodia is only 30 years old since the Khmer Rouge set the clock to zero and abolished money in the mid-70s. When viewed from this perspective it is a remarkable achievement to have come so far so quickly and in spite of misgivings expressed in two influential reports issued recently by the World Bank and the IMF, there are positive elements as well. Firstly, the NBC earns high marks for its prudent policies and regulations. Secondly, more and more banks are beginning to appreciate the benefits of transparency even to the extent of obtaining international credit ratings.
Thirdly, the government’s steadfast adherence to the market, freedom from exchange controls and unrestricted capital movements make it one of the most ‘business friendly’ environments in the region.
This having been said the score is ‘Good – but could do better’. A good regulatory environment is only good if it is consistently applied and effectively enforced. The problem for Cambodia is a chronic lack of skilled resources in the supervisory area which results in some hesitancy in prosecution, and reality falling short of intentions. Some progress is being made but there is still a way to go.
Transparency has improved considerably over the last decade but is still very mixed. Generally those banks which adhere to international standards in disclosure have done better in capturing market share than those who cling to traditional secrecy: an increasingly educated public are now demanding more information and placing their trust with those that provide it. One particular area of concern in an economic down-turn is the health of the loan portfolio and reassurance that provisioning is adequate yet there are still a few banks who insist that they have zero NPLs! (see note 2)
For a potential investor coming to Cambodia for the first time the banking system can be somewhat bewildering as the number of new financial institutions has proliferated. Unfortunately very few are internationally known or have strong banking backgrounds. The NBC’s reaction to this has been to raise the licencing requirements both in terms of capital adequacy and professional qualifications and this may cause some of the smaller ones to close (as happened in 2000 – 2001), amalgamate (although this seldom occurs in Cambodia perhaps due to the family-owned structure of many of them) or sell. Of the 24 commercial banks now operating the ‘top-4’ hold 70 per cent of total deposits and 73 per cent of loans in the banking system. Only one bank, Acleda, can claim to a true nationwide branch network in every province and town – most banks concentrate their offices in the five major cities.
It is now easy to transfer money throughout the country and ATMs and PoS terminals are springing up everywhere. Products and services are ‘plain vanilla’ compared to those offered in more advanced centres and there is still no money market although some of the bigger banks have set up informal arrangements with each other. The US$ is the most widely used currency particularly in the bigger cities but it is possible to have accounts in Euro, Aus$, Thai Baht, and almost any other major currency you wish as well as the Cambodian Riel (see note 3). There are no restrictions on foreign exchange. In this still very cash oriented society cash management and payrolls are important services, particularly for manufacturers, wholesalers and distributors and a few banks have made this a speciality.
The selection of a bank is obviously crucial and is well worth some research before a decision is made. Some obvious questions would be:
- Transparency: does the bank conform to international standards in auditing and disclosure? How freely is this information accessible? Does it have an international credit rating? Does it comply with international conventions to avoid potential sanctions by the regulators in the major international financial centres?
- Ownership and management quality?
- Does the bank have a good correspondent network with major international banks to handle foreign transactions?
- Does your proposed business require access to services only in the major cities or more extensive coverage in the provincial areas? Does it require any special services and how willing is the bank to ‘tailor make’ them?
These are just a few considerations but the best way of course is to meet and talk. See you in Cambodia!
Notes
1. ‘Influential’ is defined as holding at least 20 per cent of the bank’s capital and having unlimited liability.
2. ‘Non-performing Loans’ – loans which are more than 30 days past due.
3. The NBC’s attitude is to ‘let the market decide’ whatever currency it wishes to use and for the present there is no official policy to de-dollarise the economy.
John Brinsden
John Brinsden OBE, is Vice-chairman of Acleda Bank Plc, which he joined in 1999 after a 38-year international career with Britain’s Standard Chartered Bank. ANZ Royal Bank ANZ Royal Bank was established by Australia and New Zealand Banking Group Limited (ANZ) and the Royal Group of Cambodia, one of Cambodia’s largest corporations. ANZ holds 55% of total shares on issue and Royal Group holds 45%. ANZ Royal Bank has an extensive network of ATMs throughout Cambodia and is the only bank that currently provides internet banking in Cambodia. ANZ Royal Bank offers various banking products and services for both personal and business customers. Tel: +855 (0)23 999-000
www.anzroyal.com
Cambodian Public Bank Cambodian Public Bank (Campu Bank) is a wholly-owned subsidiary of Public Bank Group which is one of the largest and strongest domestic banking groups in Malaysia. Campu Bank began banking in Cambodia in 1992 and today has a network of 15 branches. It has become the largest bank in Cambodia in terms of loans, assets and paid-up capital. Campu Bank was awarded 'Bank of the Year in Cambodia' by The Banker, London for five consecutive years from 2001 to 2005 and again in 2008 and 2009.Tel: +855 (0)23 987-297
www.campubank.com.kh
ACLEDA BankACLEDA Bank was the first bank in Cambodia to be assigned ratings by the top international credit rating agencies — Moody's Investors Service and Standard & Poor's. The bank is 51% owned by Cambodia interests, including its staff, with the remaining 49% taken up in equal parts by IFC (International Finance Corporation — a division of the World Bank), DEG (a part of KfW, Germany), FMO, and Stichting Triodos Doen together with Triodos Custody B.V. as custodian of Triodos Fair Share Fund (The Netherlands). At the end of November 2010, ACLEDA Bank had extended to 234 offices located in provinces and towns across Cambodia. Tel: +855 (0)15 900-387 www.acledabank.com.kh
National Bank of Cambodia
The National Bank of Cambodia was established in December 23, 1954. After the country gained the independence from France. www.nbc.org.kh The Association of Banks in Cambodia
The official organisation to represent the country's private banking sector. www.abc.org.kh Securities and Exchange Commission of Cambodia (SECC)
SECC regulates the securities industry in Cambodia to contribute to socio-economic development through capital mobilization from public/ securities investors to meet the demand of financing for investors.
http://secc.gov.kh/english/ IMF Cambodia
http://www.imf.org/external/country/KHM/index.htm IFC Cambodia
http://www.ifc.org/ifcext/eastasia.nsf/Content/Cambodia World Bank Cambodia
www.worldbank.org/kh
Ministry of Economy and Finance Ministry of Economy and Finance (MEF) is delegated by the Royal Government to perform the mission of guidance and administration of the economy and finance of the Kingdom of Cambodia in order to support economic development and to improve the living standards of Cambodian people based on the principles of a free market economy and social equality. Ministry of Economy and Finance
St.92, Sangkat Wat Phnom, Khan Daun Penh, Phnom Penh, Cambodia
Tel: 855-23-724 664 Fax: 855-23-427 798
Email: admin@mef.gov.kh
http://www.mef.gov.kh/
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