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BANKING
The financial sector in Cambodia mainly consists of the banking sector. In 1990, the National Bank of Cambodia (NBC) was established from mono-bank and responsibility for the public accounting was assumed by the Treasure Department. Two public banks, the Municipal Bank and the Foreign Trade Bank (FTB) took over NBC¡¦s commercial activities. But the banking system today comprises National Bank of Cambodia and its 20 provincial branches and a large number of commercial banks following the admission of foreign and private banks to the banking system in 1991. Two of 32 commercial banks currently operating in Cambodia are state banks which are in process of being privatized and 30 are private. All of them, however, have the foreign majority share holding. At the end of December 1996, eight banks accounted for 86 % of total deposits and seven banks accounted for 66% of outstanding loans. A few of the small banks hardly have the lending activities. As for the NBC, its role remains limited since monetary systems in Cambodia are largely conducted in Dollars and cash transactions.
The new Central Bank Law, which is promulgated in January 1996, was to set up a modern legal framework for the financial system to maintain price stability and providing a number of monetary policy instruments. An immediate priority for NBC is to increase its capital to strengthen its supervisory capabilities and develop the human resources and on-sight and off-sight inspections. The NBC has also adopted the new reporting forms for commercial banks. Cambodia has been following liberal foreign exchange policy. In the context, commercial banks hold large amounts of foreign assets, mostly placed with correspondent banks.
Foreign assets represented more than a third of their assets in the first half of 1997. In addition, a large part of bank paid-in capital is placed outside Cambodia (The increase from 5% to 10% of a bank¡¦s capital is required to be deposited at the NBC since February 1999 and the minimum paid-up capital is now increased to 50 billion Riels {approximately US$13,089,005.00} in accordance with the new law on the Bank promulgated in November 1999).
The Banking System¡¦s balance sheet illustrates this tendency towards an outflow of domestic savings largely into foreign assets. In fact, credits to the economy represented only (4%) of GDP, which is much below the ratios achieved by neighboring countries such as Vietnam (19% of GDP). This low level of financial inter-mediation is also illustrated by the comments given by entrepreneurs on the products and services provided by banks.
Another feature of the banking system, largely resulting from the lack of a proper legal and regulatory framework, is the weak role of the central bank, bank¡¦s lack of confidence in counterparts and the fact that there are virtually no Inter-Bank transactions. There is no clearing mechanism, except for some clearing operations organized at times by the National Bank of Cambodia for checks of very small amounts. This is an impediment to a normal conduct of business.
Currently there is no credit information system in Cambodia except the foreign branch banks or large enterprises. Almost all banks require collateral (100%) when financing is arranged in Cambodia. The banks are extremely cautious in their lending activities even if the collateral is full because security is not fully insured due to the lack of the proper legal framework to deal with resolution of conflicts relating the ownership and transfer of assets. Therefore, all the banks expect that the legal framework on secured transactions is expected to improve promptly to ensure the lenders that the secured assets can be effectively sold or confiscated when required. Due to their insufficient capital, 11 of 32 banks have been declared to be closed since January 2001. As indicated by National Bank of Cambodia (NBC), the money supply in Riel was striated to 540 billion Riels in the third quarter of 2000, about 1% lower than the amount in second quarter. The money supply in Riel was limited in an attempt to diminish devaluation against the U.S Dollar.
Currently the financial system in Cambodia is still developing and competitive. In short the monetary performance in Cambodia in 2000 was relatively stable. The value of Cambodia Riel appreciated against Thai Baht, but was devalued by 1 % against the U.S Dollars and 0.7% against Vietnamese Dong.
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