Banking and financial services

As of December 2019, the key bodies in the banking system consisted of:

  • 47 commercial banks
  • 15 specialized banks
  • 76 microfinance non-deposit taking institutions
  • 7 microfinance deposit-taking institutions
  • 245 rural credit institutions

In addition, there are foreign bank representative offices, financial lease companies, third party processors, one credit bureau and around 2,913 money-changers. All come under the oversight of the National Bank of Cambodia, the supervisory authority. 1

Phnom Penh’s Central Market dome and Vattanac Capital and Canadia Bank building. Photo by Ashley, taken on 27 June 2015. Licensed under CC BY-NC-ND 2.0.

Access to credit

Growth in credit to the private sector has been slowing in recent years, from 25,7% in 2015 to 20,5% in 2016, 17,2% in 2017, 24,3% in 2018 and 23,9% in 2019.2 Access to loans and credit is high in Cambodia, according to the World Bank’s ‘2019 Doing Business’ rankings​, Cambodia ranks 25th out of 190 countries for ease of getting credit​.3

Building strength in the financial system

A number of actions are underway to improve the strength and transparency of the financial system. Keys among them include:

  • In December 2015, the National Bank issued a Prakas setting out a requirement for a higher liquidity coverage ratio. This requires banks to hold a certain proportion of liquid assets so that they can handle financial shocks better. Compliance is required in 5 steps until 2020. The higher liquidity ratio is consistent with Basel III standards.4
  • In March 2016, the National Bank announced that banks would need larger amounts of minimum capital. All locally-incorporated commercial banks (including foreign bank subsidiaries) must increase minimum capital to the equivalent of $75 million. Branches of parent banks with investment-grade ratings need capital of $50 million. The banks have two years to comply. 5
  • The same March 2016, Prakas requires microfinance deposit-taking institutions to have a minimum registered capital of $30 million and microfinance institutions a minimum capital of $1.5 million. The institutions must meet the requirements within two years. 6
  • In 2017, the National Bank issued measures to protect the consumer and enhance the effective supervision of the banking system such as Prakas No. B7-017-109 Br.Kr, dated 13 March 2017, on “Interest Rate Ceiling on Loan”, Prakas No. B7-017-301 Br.Kr, dated 27 September 2017, on “Liquidity Risk Management Framework for Banks and Financial Institutions” and Prakas No. B7-017-335 Br.Kr, dated 14 November 2017, on “External Audit of Banks and Financial Institutions”.7
  • In 2018, the National Bank issued significant regulations, including the Circular on the implementation of regulations on credit risk grading and impairment provisioning (adopted on 16 February 2018) for the purpose of providing further guidance to the implementation of some requirements (i.e., the submission of financial statements, the review and classification of facilities, the revision of credit policies, etc.), the regulation on capital buffers of bank and financial institution (adopted on 22 February 2018), which aims to set out capital buffers, including capital conservation and countercyclical capital, to strengthen the durability of banks and financial institutions and regulation on the usage of new forms of bank cheque (adopted on 26 September 2018).8
  • Since 2009, banks and financial institutions have had to comply with reporting standards that are essentially the same as the International Financial Reporting Standards (IFRS). However, resource and capacity limitations mean that many of them are still working towards this.9

Payment system developments

The term ‘payment system’ refers to interbank funds transfer systems and other mechanisms for the circulation of money. It includes older paper-based systems (such as cheque) and electronic transfer of funds. In 2012, the National Bank introduced the national clearing system to clear cheques and electronic payments more efficiently.10

The National Bank is currently developing an integrated system to facilitate electronic payments such as ATM withdrawals, point-of-sale payments and, mobile and internet payments. A Real Time Gross Settlement (RTGS) System, where money moves between banks without any delay and on a gross basis, is some time away. The National Bank has implemented new payment technologies such as Fast Payment System (FAST) to allow customer to obtain instantly transferred fund and Cambodian Shared Switch (CSS) for facilitating interbank transactions.11

Leasing sector growth

The business of financial leasing companies has grown remarkably in recent years. There was one company in 2012 and 15 in 2019. There has been particular growth in leasing services on moveable assets: agricultural machines, construction machines, cars and motorcycles, household appliances and so on. 12

Credit bureau Cambodia

The Credit Bureau Cambodia began operating in March 2012. Licensed by the National Bank, this private body provides consumer credit reports on customers that help banks and other bodies to make informed lending decisions and manage credit risk. All financial institutions licensed by the National Bank are members of the Bureau.13

Microfinance

By the end of 2019, microfinance institutions held assets of KHR 35.9 trillion (approximately USD 8.8 billion).14 Microfinance is a particularly important source of funds for micro, small and medium-sized rural businesses.15Lending interest rates have been falling but are still high: the KHR rate fell from 70% in 2001 to 17,9% in 2019 and the USD rate was 16%. Women are dominant among the customers as more than 70% of the ownership of deposit and loan accounts belong to them.16 However, microloan growth has far outpaced income growth and it raises serious human rights concerns regarding the debt repayment through coerced land sales, child labor and debt-driven migrations.17

Participation in banking and financial services

The number of borrowers in the banking system more than triple in recent years, from 821,000 in 2007 to 2.8 million in 2018, while the number of depositors rose from 604,000 to 6.3 million – a more than 10 times increase.18 The National Bank estimated that by the end of 2016, about 71% of adults had access to financial services.19

Promoting an increased uptake of digital and mobile banking is a focus for both the National Bank and commercial banks.20 In March 2016 the Ministry of Economy and Finance signed a memorandum of understanding with Wing that would let people make property or tax payments through Wing’s mobile money platform.21

The number of banks and microfinances ATMs stood at 2,299 by the end of 2019,22 a strong increase on previous years but still low (16.3 per 100,000 adults in 2017) compared to the average for all lower middle-income states (23.9 per 100,000 adults).23

Dollarization

Although Cambodia has its own currency “Riel”, US dollars are widely used in the banking and finance sector, accounting for around 83 % in 2018.24

The National Bank’s Vice-Governor Ouk Maly has been quoted as saying that this presents both advantages and disadvantages. “As the size of the economy grows, dollarization increases costs and vulnerabilities to the Cambodian economy, it limits the effectiveness of our monetary policy which plays a key role in contributing to maintaining price stability and setting appropriate levels of interest rates to support investment as well as economic growth.” The high level of dollarization limits the bank’s ability to guide interest rates, exchange rate policy or intervene in a crisis. Both the bank and the government encourage the use of the national currency the riel.25

In 2016 the National Bank launched the Liquidity-Providing Collateralized Operation (LPCO), providing low-interest loans in riel. The bank’s aim is to encourage the use of riel and to lower interest rates.26

Consumer challenges

Apart from large risks such as international financial shocks or a significant downturn in the Chinese economy, there is a particular set of smaller-scale local risks facing the banking and finance sector in Cambodia. These include the lack of a bankruptcy law and the ability of consumers to change their national ID details.27

Regulation

Numerous laws governing the operation of the banking and financial sector have been introduced such as:

After the Law on Anti-Money Laundering and Combating the Financing of Terrorism was passed, the Cambodian Financial Intelligence Unit was set up as an independent body under the National Bank of Cambodia. The main role of the unit is to prevent the Cambodian financial system being used for activities such as money laundering and financing terrorist activities. In March 2019, the NBC launched a new national strategy to fight against money laundering and financing of terrorism for 2019-2023.28The Financial Sector Development Strategy 2016–2025 was adopted in late 2016 to develop a sound, market-oriented financial sector that will allocate resources to support sustainable economic growth.29

Related to Banking and financial services

References

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