According to the Annual supervision report 2020 by the National Bank of Cambodia (NBC), the key bodies in the banking system consists of:
- 51 commercial banks
- 12 specialized banks
- 75 microfinance non-deposit taking institutions
- 6 microfinance deposit-taking institutions
- 245 rural credit institutions
In addition, there are financial leasing companies, third-party processors, payment service institutions, credit reporting system service provider, representative offices, and money changers, which are under the oversight of NBC, the supervisory authority. 1
Access to credit
Customer’s credit growth has been slowing in recent years, dropping from 20,5% in 2016 to 16.1% in 2020.2 Access to loans and credit is high in Cambodia, according to the World Bank’s ‘2020 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 2022, ten policies to support economic growth and respond to the pandemic will be introduced by NBC.4
- On 07 and 11 April 2021, Cambodia Microfinance Association (CMA) and Association of Banks in Cambodia (ABC) issued joint statements through six debt relief measures to relax repayment measures and prevent the spread of COVID-19.5
- In 2018, NBC 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).6
- In 2017, NBC 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 March 2016, NBC 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. 8
- 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. 9
- In December 2015, NBC 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.10
- 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.11
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, NBC introduced the national clearing system to clear cheques and electronic payments more efficiently.12
With regard to the advancement of financial technology (FinTech), the payment system in Cambodia has been modernized and contributed to the development of the banking system and economy for more effective, secure, and reasonable price. NBC also introduced and launched a new payment system called “Bakong” in October 2020 to promote non-cash payment and financial inclusion, which Cambodia aims to move toward digital economy.13 As of June 2021, Bakong users reached 200 000, and around $500 million transactions were recorded in just the first half of 2021.14 As a member of ASEAN Central Banks Working Committee on Payment and Settlement Systems, NBC launched cross border payment service between Cambodia and Thailand through QR code, and is exploring the possibility of doing the same with other ASEAN members..15
Leasing sector growth
There has been particular growth in leasing services on moveable assets: agricultural machines, construction machines, cars and motorcycles, electronic appliances and so on. 16
Credit bureau Cambodia
The Credit Bureau Cambodia (CBC), a leading provider of financial information, analytical solutions, and credit reporting services to consumers and financial institutions in Cambodia, began operating in March 2012. Licensed by NBC, 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 NBC are members of the bureau.17
By the end of 2020, microfinance institutions held assets of KHR 34.3 trillion (approximately USD 8.5 billion).18 Microfinance is a particularly important source of funds for micro, small and medium-sized rural businesses.19 Lending interest rates have been falling but are still high: the KHR rate fell from 70% in 2001 to 15.4% in 2020 and the USD rate was 15.2%.20 Women are dominant among the customers as more than 70% of the ownership of deposit and loan accounts belong to them.21 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.22
Participation in banking and financial services
The number of borrowers in the banking system more than triple in recent years, from 0.8 million in 2007 to 3.2 million in 2020, while the number of depositors rose from 0.6 to 8.9 million – an almost 15 times increase.23 NBC estimated that by the end of 2016, about 71% of adults had access to financial services.24
Promoting an increased uptake of digital and mobile banking is a focus for both the National Bank and commercial banks.25 Digital and mobile banking has been growing rapidly during the pandemic when the government developed e-money and digital banking, and NBC encouraged consumers and businesses to use e-wallet services to combat the spread of COVID-19 disease.26
The number of banks and microfinances ATMs stood at 3,177 by the end of 2020,27 a strong increase on previous years (23.2 per 100,000 adults in 2019) compared to the average for all lower middle-income states (19.2 per 100,000 adults).28
On 23 July 2021, Economic Research and Regional Cooperation Department of Asian Development Bank (ADB) and NBC launched the Macroeconomic Surveillance Database System to analyze and monitor the macroeconomic financial state in Cambodia. It will allow NBC and ADB to make policies and ensure price stability and economic growth. The users of the database can also monitor the economic and financial progress of the country through 70 key indicators, 300 graphs, and 300 types of sectoral data.29
The start of dollarization in Cambodia was not from a policy decision but erosion of public confidence in the local currency (riel) and government policy during the 1980s. US dollars began to flood the economy when the United Nations Transitional Authority in Cambodia (UNTAC) entered Cambodia in 1991 – 1992. NBC was not prepared to cope with this new shock against the national currency, which the dollar eventually was used as a medium of exchange and unit of accounts and flowed alongside the national currency.30
In May 2020, after a meeting with the bank and microfinance representatives, NBC announced a new plan to phase out the $1, $2, and $5 bills and push for the use of the riel. Commercial banks and microfinance institutions were given three months to send the bills back to the central bank to phase-out circulation of small-denominated dollars. Prime Minister Hun Sen, ABC, and CMA noted that the bills were still legal, and people should continue to use them.31
Although Cambodia has its own currency “Riel”, US dollars are widely used in the banking and finance sector, accounting for around 83 % in 2018.32
Her Excellency Chea Serey, NBC Director General, said that the dependence on the dollar can make Cambodia lose control of the monetary policy. She further added that the riel allows the central bank to influence economic activities through lowering or raising the interest rate so that the effectiveness of monetary policy to maintain price stability and support economic growth can be enhanced.33
In 2016, NBC 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.34 According to the World Bank, NBC supplied 3.4 trillion riel ($838 million) mostly to commercial banks, a significant increase compared to 2018 via LPCO facility.35
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.36
Banking and Financial Institutions’ Code of Conduct (BFIs CoC) was launched on 4 March 2022, in collaboration between ABC, CMA, and Cambodian Association of Finance & Technology, to enhance consumer rights, protection, and transparency and to avoid customers’ indebtedness.37
Numerous laws governing the operation of the banking and financial sector have been introduced such as:
- Law on the Organization and Conduct of the National Bank of Cambodia 1996
- Law on Foreign Exchange 1997
- Law on Banking and Financial Institutions 1999
- Law on Anti-Money Laundering and Combating the Financing of Terrorism 2007 (amended in 2013)
- Law on Financial Leasing 2009
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 2019-2023.38 The 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.39
Related to Banking and financial services
- 1. National Bank of Cambodia, “Annual supervision report 2020,” p. 1, accessed on March 2022.
- 2. National Bank of Cambodia, “Annual supervision report 2020,” p. 3, accessed on March 2022.
- 3. World Bank, “Doing business 2020”, May 2019, accessed on March 2022.
- 4. Open Development Cambodia, “National Bank of Cambodia,” 16 March 2022, accessed on March 2022.
- 5. Open Development Cambodia, “Major banks,” 09 February 2022, accessed on March 2022.
- 6. Jan Putnis, “The banking regulation review 11th edition”, May 2020, accessed on 20 November 2020.
- 7. National Bank of Cambodia, “Annual supervision report 2016”, 10 April 2017, accessed on 20 November 2020.
- 8. National Bank of Cambodia, “Proclamation on minimum registered capital of banking and financial institutions”, 22 March 2016, accessed on 20 November 2020.
- 9. Ibid.
- 10. May Kunmakara, “NBC moves to strengthen banks’ liquidity”, 11 January 2016, accessed on 15 November 2020.
- 11. Ibid.
- 12. Ibid.
- 13. National Bank of Cambodia, “Annual supervision report 2020,” p. 9 – 10, accessed on March 2022.
- 14. Phnom Penh Post, “Promoting fintech development to achieve financial inclusion in Cambodia,” Phnom Penh Post, 23 November 2021, accessed on March 2022.
- 15. National Bank of Cambodia, “Annual supervision report 2020,” p. 9 – 10, accessed on March 2022.
- 16. National Bank of Cambodia, “Annual supervision report 2020,” p. 10, accessed on March 2022.
- 17. National Bank of Cambodia, “Annual supervision report 2020,” p. 7, accessed on March 2022.
- 18. Open Development Cambodia, “Micro-finance,” 27 December 2021, accessed on March 2022.
- 19. National Bank of Cambodia, “Annual supervision report 2020,” p. 5-7, accessed on March 2022.
- 20. National Bank of Cambodia, “Annual supervision report 2020,” p. 2, accessed on March 2022.
- 21. National Bank of Cambodia, “Annual supervision report 2020,” p. 5-7, accessed on March 2022.
- 22. LICADHO, “Collateral damage: Land loss and abuses in Cambodia’s microfinance sector”, August 2019, accessed on 20 November 2020.
- 23. National Bank of Cambodia, “Annual supervision report 2020,” p. 2, accessed on March 2022.
- 24. Janelle Retka, “How Cambodia can capitalize on strides in financial inclusion”, 29 April 2018, accessed 20 November 2020.
- 25. Post Staff, “Q1 finance snapshot”, 06 April 2016, accessed 20 November 2020.
- 26. Market Research Cambodia, “Cambodia Fintech Report 2021,” 30 November 2021, accessed on March 2022.
- 27. National Bank of Cambodia, “Annual supervision report 2020,” p. 2, accessed on March 2022.
- 28. World Bank, “Automated teller machines (ATMs) per 100,000 adults”, 2020, accessed on March 2022.
- 29. Michael Firn, “Central bank sets up economic finance database with the ADB,” Khmer Times, 26 July 2021, accessed on March 2022.
- 30. Tay Nay Im and Michel Dabadie, “Dollarization in Cambodia,” 31 March 2007, accessed on March 2022.
- 31. Phorn Bopha, “Central Bank Moves to Remove Small U.S. Dollar Bills out of Circulation,” VOA Khmer, 01 June 2020, accessed on March 2022.
- 32. May Kunmakara, “De-dollarization needed for sustainable growth: NBC”, 21 March 2018, accessed on 20 November 2020.
- 33. Khmer Times Staff, “Riel benefits: CSX index helps to build currency confidence in Kingdom,” Khmer Times, 25 March 2021, accessed on March 2022.
- 34. National Bank of Cambodia, “Annual supervision report 2016”, 10 April 2017, accessed on 13 November 2020.
- 35. Sangeetha Amarthalingam, “Keeping it riel, Cambodia steps up de-dollarisation,” Phnom Penh Post, 25 June 2020, accessed on March 2022.
- 36. Hem Sochet, “Impact of the global financial crisis on Cambodian economy at macro and sectoral levels”, April 2013, accessed on 20 November 2020.
- 37. Chea Vanyuth, “Banking code of conduct to enhance consumer rights,” Khmer Times, 7 March 2022, accessed on March 2022.
- 38. Hor Kimsay, “NBC launch national strategy to fight against financial crime”, 15 March 2019, accessed on 20 November 2020.
- 39. National Bank of Cambodia, “The financial sector development strategy 2016–2025” 21 October 2016, accessed on 20 November 2020.