Banking Sector in Cambodia

INFORMATIVE REPORT
ON
BANKING SECTOR IN CAMBODIA
April, 2009
TABLE OF CONTENTS
CHAPTER I INTRODUCTION...................................................................................................................................... 4 1. ABOUT CAMBODIA .................................................................................................................................................... 4 1.A. GEOGRAPHY ....................................................................................................................................................... 4 1.B. ECONOMY .......................................................................................................................................................... 4 1.C. INTERNATIONAL RELATIONS ............................................................................................................................. 5
A- Relations with Neighbours ....................................................................................................................................................... 5 B- Relations with the International Community ........................................................................................................................... 6
1.D. 2. 3. 1.
TRADE
AND
INVESTMENT .............................................................................................................................. 6
A- External Trade and Capital Movement .................................................................................................................................... 6 B- International Investment Position............................................................................................................................................. 7
THE BANKING HISTORY IN CAMBODIA .................................................................................................................... 8 CURRENT BANKING SITUATION IN CAMBODIA .................................................................................................... 10
CHAPTER II:BANKING MARKET POTENTIAL AND CHALLENGE............................................................. 13 SERVICE PROVISION FROM MAJOR BANKS ............................................................................................................. 13 1.A. CANADIA BANK PLC ........................................................................................................................................ 13 1.B. ACLEDA BANK .................................................................................................................................................. 14 1.C. CAMBODIAN PUBLIC BANK ............................................................................................................................. 17 1.D. ANZ ROYAL ..................................................................................................................................................... 18 2. LOAN AND DEPOSIT IN BANKING .......................................................................................................................... 21 3. PROFITABILITY ......................................................................................................................................................... 22 4. CHALLENGE IN BANKING SECTOR ......................................................................................................................... 27 CHAPTER III: BANKING REGULATION AND LICENSING............................................................................ 30 1. 2. CURRENT BANKING REGULATIONS ....................................................................................................................... 30 KEY CRITERIA TO GET LICENSE................................................................................................................................ 32 2.A. SPECIALIZED BANK .......................................................................................................................................... 32
A- PROCEDURE FOR SUBMITTING A LICENSE APPLICATION ......................................................................................................... 32 B- LICENSE APPROVAL AND RELATED FEES ................................................................................................................................. 34 C- PRUDENTIAL RULES ................................................................................................................................................................. 35 D- OTHER PROVISIONS ................................................................................................................................................................ 35
2.B.
COMMERCIAL BANK.................................................................................................................................. 36
A- PROCEDURE FOR SUBMITTING A LICENSE APPLICATION ......................................................................................................... 36 B- LICENSE APPROVAL AND RELATED FEES ................................................................................................................................. 38 C- OTHER PROVISIONS ................................................................................................................................................................. 39
3.
THE SUPERVISORY ROLE OF THE NATIONAL BANK OF CAMBODIA ..................................................................... 40
CHAPTER IV .................................................................................................................................................................... 42 CONCLUSION ................................................................................................................................................................. 42 REFERENCES: .................................................................................................................................................................. 43
Brothers Investment Group Co., Ltd.
www.big.com.kh
Page 2 of 44
EXECUTIVE SUMMARY
Before the 90s, the banking sector in Cambodia was strongly affected by political events. For instance, following the establishment of the National Bank of Cambodia in 1954, private and state banks were allowed to operate together, but the economic neutrality policy of Sangkum Reastr Neyum in 60s, national and foreign private banks were forced to close. After the military coup in 1970, the banking system was again liberalized only to be completely destroyed when the Khmer Rouge regime came to power in 1975 and closed down the banking system and blew up the National Bank leaving the country without any functioning banks or currency. When the country renounced the centrally planned economy in 1989 and advocated free market economics, the banking system has been transformed from the mono-banking system to the 2tier banking system, and welcomed the first state-private joint venture bank in 1991. During the 90s, the banking sector experienced ups and downs. Commercial banks increased in number to 31 by the end of 1999, but reduced numbers to just 14 in 2002 due to the new paid up capital requirement from US$5 million to US$13 million, which led to the closure of 12 banks in 2000 and another 5 in 2002. The Banking sector again started to pick up during the strong economic growth and political stability in the second half of this decade, in which in two years between 2007 and 2008, 10 new banks were established. The arrival of international banks brought some innovative banking practices - the branches, the ATMs, POS; raised the bar beyond the formal regulatory framework; and pushed up the standards of smaller local and regional institutions. Profitability has been strong, which contributes from three factors (i) Low labor cost; (ii) Lending spreads are high at 4-5% for prime loans and 11-12% for small-business loans; and (iii) Low Non-performing Loans The Law on Banking and Financial Institutions divides banks into two categories, specialized banks and commercial banks. The difference between these two types is the commercial banking operation must include: (i) Credit operations for valuable consideration, including leasing, guarantees and commitments under signature; (ii) The collection of non-earmarked deposits from the public; (iii) The provision of means of payment to customers and the processing of said means of payment in national currency or foreign exchange; while the specialized bank need to perform only one of the above operation. Cambodias banking sector, however, is still in its infancy with a huge growth potential, as formal credit accessibility is just about 10 percent of the population, and per capita lending is just around US$114, which is comparable to Thailand in the early 1970s, Indonesia and the Philippines in the mid- to late-1980s and Vietnam in 2000. The challenges ahead for the banking sector are improving profitability, rising non-performing loans, reinforcing technology, risk management, sharpening skills, greater customer orientation, corporate governance, and international standards. The National Bank of Cambodia supervises the banking system and its related activities such as the money market, the inter-bank settlement system, and financial intermediation. In order to obtain the license from NBC, commercial banking application need to have a minimum capital requirement of US$36.5 million (US$ 7.5million for specialized banking), and other requirement as stipulated in law on banking and financial institutions (1999), PRAKAS No B700-04 on licensing of commercial bank, PRAKAS No B700-05 on licensing of specialized bank (2000), which is also summarized in Chapter III of this report.
Brothers Investment Group Co., Ltd. www.big.com.kh
Page 3 of 44
CHAPTER I
INTRODUCTION
1. ABOUT CAMBODIA
1.a. GEOGRAPHY
Cambodia, with an area of 181,035 sq km (69,898 sq miles), is bordered by Thailand, Laos and Vietnam and has a coastline on the Gulf of Thailand. Apart from the Cardamom Mountains in the south-west and uplands in the north-east, the country is predominantly flat. The sharp slope of the Dangrek Mountains marks much of the northern border with Thailand. In the centre of the country is the largest lake in South East Asia, the Tonle Sap. The capital, Phnom Penh, is located at the confluence of the Mekong, Tonle Sap and Bassac rivers. Beyond the river valleys the land is frequently infertile, because rainfall is scant and there is little irrigation. Most Cambodians live in rural areas, cultivating rice as their staple crop.
1.b. ECONOMY
Cambodia remains largely agrarian with one in three Cambodians living below the poverty line. Inequality has grown over the last decade, particularly during the years 1994-1997. The government has made good progress in stabilising the economy and reducing poverty levels. In 2005 the government developed a comprehensive reform agenda set out in the National Strategic Development Plan, which has solid support from foreign donors. Cambodia has seen impressive growth rates at almost 10% since 2000. However, growth has been narrowly based (primarily in Phnom Penh, Siem Reap and Sihanouk ville, and in the garment, construction and tourism sectors) with modest linkages to the rest of the economy and this pattern has resulted in limited benefits to the 84% of the population who live in rural areas.
Page 4 of 44
Cambodia is rich in natural resources such as mineral, forestry, and water. Oil and gas deposits have been identified in the Cambodian territorial waters but quantities have not yet made public. Table 1: Economic Indicators in Cambodia
2004
2005
2006
10.80 513.00 4.71 11.50 14.00 38.20 44.80 62.80 51.60
2007
9.60 589.00 5.84 11.80 13.30 62.90 75.00 78.00 76.00 4,041.00 5,311.00 1,270.00 -571.00
2008-f1
7.00 751.00 21.50 12.00 14.90 29.00
1. GDP GDP % change Per capita GDP (In U.S dollar) 2. Inflation Inflation(12 month) 3. Government Budget (In percent of GDP) Revenue Expenditure 4. Money and Credit (12 month in% Change) M2 Total Deposit in the Banking system Total Outstanding Loans in the Banking System Credit Private Sector 5. Balance of Payments Exports Imports Trade Balance
10.00 373.00 3.87 10.30 14.90 30.00 25.90 32.90 35.90 2,589.00 3,269.00 -681.00
13.40 430.00 5.78 10.30 13.70 16.10 15.60 17.40 31.80 2,910.00 -3,928.00 -1,018.00
35.00 4,793.00 -6,243.00 -1,450.00 -795.00 4,120.00
3,693.00 -4,749.00 -1,057.00
Current Account (exclude official -436.00 -591.00 -525.00 transfer) Exchange Rate (Riel per Dollar and 4,027.00 4,112.00 4,057.00 3,999.00 period) 6. Dimensions of the Banking System as at 30th September,2008 Number of banks(2) 25 Commercial Banks 6 Specialized Banks 17 Licensed Microfinance Institute Total Assets (US$) 3,967.33 million Total Loans Portfolio Banks(US$) 2,247.08 million Total Deposit (US$) 2,253.08 million
1.c. INTERNATIONAL RELATIONS A- Relations with Neighbours

Cambodia enjoys cordial bilateral relations with all its regional neighbours despite some border problem with Thailand. Cambodia will continue to co-operate closely with neighbouring Vietnam and Thailand, particularly on plans to define its land borders with these countries. Since Cambodia joined the Association of South East Asian Nations (ASEAN) in 1999, its foreign policy has been largely regionally-focused.
1
2
Economic Institute of Cambodia, Economics Today Magazine, Volume 2, Number 28, December 1-15, 2008
- National Bank of Cambodia, Banking Supervision Department Report
www.big.com.kh
Page 5 of 44
B- Relations with the International Community

After reaching a settlement in the civil war in the early 1990s, the international community particularly China, Japan, the US and the EU have invested heavily in the reconstruction of the country, which was severely damaged by 20 years of civil war. Currently Cambodia is a member of UN, member of ADB, member of World Bank, member of IMF, member of ASEAN (1999), member of WTO (2003), and member of Asia Europe Meeting (ASEM, 2004).
1.d. TRADE
AND
INVESTMENT
Cambodia has enjoyed relatively high economic growth, with an average GDP growth of 9 percent per annum for the last five years. Nonetheless, the countrys economy appears to remain vulnerable, mainly due to its high dependence on just a few sectors and external influences. In 2007, garment exports alone reached 72% of Cambodias total exports, with almost all the material needed for these garments being imported.
Figure 1: Cambodias Total Exports 2007 (in US$ mln.)
other manufactured Goods, 0.6 Miscellaneous., 104.9 Animal and vegetable, 553.6 Wood and products, 25.6
Rubber and products, 156.8
Beverages and tobacco, 44.3 Garment , 2957.6
Source: National Bank of Cambodia, Cambodia Balance of Payment Statistic Bulletin, Series N0.19 March Quarter 2008.
A- External Trade and Capital Movement

External trade has played a very important role in boosting the Cambodian economy during the last decade. The annual amount of external trade for both export and import of goods keeps increasing significantly, around 20 percent annually.
Table 2: Cambodia Balance of Payment, 2001-2005 (million of US$)
Balance of Goods Balance of Services Balance of Incomes Current Transfers(net) Current Account Capital & Financial Accts Overall Balance
2001 2002 2003 2004 2005 -523 -591 -581 -681 -1018 177 229 115 291 471 -138 -184 -179 -221 -254 396 439 413 428 440 -88 -107 -232 -183 -360 216 288 311 351 396 128 181 78 169 35 Source: National Bank of Cambodia
Page 6 of 44
www.big.com.kh
Table 3 Cambodia Balance of Payment (million of US$) from DQ06-MQ08n

300.0 200.0 100.0 0.0 -100.0 -200.0 -300.0 -400.0 -500.0 Balance on Goods Net Services Net Incomes Net Current Transfer Balance on Current Account DQ06 -270.8 149.6 -77.3 123.5 -75.0 MQ07 -217.6 200.4 -78.1 136.1 40.9 JQ07 -329.1 117.8 -80.4 136.0 -155.7 SQ07 -412.2 140.7 -103.8 135.9 -239.5 DQ07 -375.7 185.4 -97.7 136.0 -152.0 MQ08 -277.9 219.4 -97.7 140.4 -17.7
Source: National Bank of Cambodia
The decrease in current account deficit from US$152.0 million in December Quarter 2007 to US$ 17.7 million in March Quarter 2008 was mainly due to a decrease of 26.0% in the balance of goods deficit, while the net income deficit increased 2.1% compared to the previous quarter.
B- International Investment Position

At the end of March 2008, Cambodias net international investment position showed a net foreign liability of US$1,213.3 million, down 3.1% compared to the net balance at the end of December 2007, and up 18.6% compared to the net balance at the end of March 2007
Figure 2: International Investment Position Aggregates
1,500.0 1,000.0 500.0 0.0 -500.0 -1,000.0 -1,500.0 -2,000.0 -2,500.0 -3,000.0
Net Equity Net Debt Net Other Instruments Net International Investment Position
DQ06
MQ07
JQ07
SQ07
DQ07
MQ08
Source: National Bank of Cambodia
www.big.com.kh
Page 7 of 44
Net equity liabilities, at the same time, increased from US$2,776.2 million (up 8.4%). Net debt increased from US$972.5 million to US$1,190.7 million (up 22.4%) and net other instruments increased from US$336.5 million to US$372.2 million (up 10.6%)3.
2. THE BANKING HISTORY IN CAMBODIA

Following the independence from France and its establishment of National Bank in 1954, Cambodia started printing its own national currency of Riel in order to completely terminate the monetary alliance with the Vietnamese and Laos currency. Soon after, there was local banking system in which the state banks and private banks operated together in the territory of Cambodia. In 1963, however, Cambodia's economy started to stagnate when the policy was designed to link economic neutrality policy to the country's territorial integrity and border security. In 1964, in order to follow the national building policy of the Sangkum Reastre Niyum, the banking system had been gradually reformed to meet the national economys requirement by transforming the National Bank of Cambodia from the semi-autonomous institution to the stateowned bank under the form of the public entity with characteristics of industry and commerce, while the national and foreign private banks were closed, and the state established some stateowned banks such as Bank of Inadanajati, Development Bank, and the Rural Agricultural Bank. Following the change of political regime, the state had liberalized the banking system once again in late 1970. The private banks were authorized to operate along with the state bank under the regulation and supervision of the National Bank of Cambodia. During the regime of Khmer Rouge, the National Bank of Cambodia was demolished with explosives by the new Khmer Rouge government as a symbol of their rejection of capitalism, the banking system was totally destroyed, and the use of money was outlawed and the economy crumbled. The Vietnamese-backed government that topped the Khmer Rouge in 1979 re-established the People's Bank of Cambodia called "Bank of Cambodia" as a Central Bank of the Country by subdecree No 1211 dated October 10, 1979 of the Council of the Revolutionary People of Cambodia. Financial sector has to restart again, from the ground up, a development that still, in many ways, a work-in-progress. Since 1989, the banking system had been gradually reformed through transforming the 20provincial and municipal banks into specialized provincial and municipal banks and had been operating with economic and financial autonomy in their territory, the People's Bank of Kampuchea had played its role as monetary authority to direct and supervise these banks. In 1991, the first Commercial Bank (Cambodia Commercial Bank "CCB") was established under the form of state Joint Venture Bank for attracting investors and serving the activity of the United Nations Transitional Authorities in Cambodia (UNTAC). The Paris Peace Accord on 23 October 1991 was a political detour of the transforming the economic regime from planning economy to free market economy that made the Cambodias banking system transformed from the mono-banking system to the 2-tier banking system. Furthermore the state had completely authorized the banking activities to be operated in Cambodia through establishing the commercial banks under the local laws or under the form of foreign banks branches. Foreign banks are guaranteed right and obligations equal to local banks and there are no restrictions on foreign ownership of banks. In November 2000, however, a restructuring initiative by the National Bank led to the delicensing and liquidation of 12 banks (see in table 4) that failed to increase their paid-up capital
3-
Cambodia Balance of Payment Statistics Bulletin, National Bank of Cambodia. March Quarter 2008
www.big.com.kh
Page 8 of 44
from KHR 20 billion to a new minimum of KHR 50 billion. This, however, result in the whole banking system stronger. A new prakas4 in September 2008 further increased the minimum capital requirement to KHR 150 billion (One hundred and fifty billion Riel) for commercial bank, and KHR 30 billion (Thirty billion Riel) for rural credit specialized bank as the government believed that unsafe banks could lead to a systemic financial crisis, economic collapse and massive permanent economic losses, as in the Asian financial crises in 1997-1998.
Table 4: Name of banks before the re-licensing program Name of Banks Year of Start
1- Foreign Trade Bank 2- First Commercial Bank 3- Krung Thai Bank 4- Maybank 5- Cambodia Asia Bank 6- Canadia Bank 7- Cambodian Commercial Bank 8- Cambodia Mekong Bank 9- Cambodia Public Bank 10- Union Commercial Bank 11- Vattanak Bank 12- Rural Development Bank 13- Cambodia Agriculture, Industry and Commerce Bank 14- Singapore Bank Corporation 15- Standard Chartered 16- Bangkok Bank 17- Thai Farmers Bank 18- Credit Agricole Indosuez Bank 19- Cambodia Agriculture-Commercial Bank 20- Phnom Penh City Bank 21- Chansavangwonk Bank Corporation 22- Singapore Commercial Bank 23- Rich Nation Bank 24- Great International Bank Ltd 25- Global Commercial Bank 26- Peace Commercial Bank 27- First Oversea Bank 28- Emperor International Bank 29- Cambodia Bank International 30- Angkor Bank 31- Cambodia Farmers Bank 1979 1991
1993 1991 1991 1994 1996 2002
1993
National Bank of Cambodia, Prakas No.T7.08-193 Prokor On New Capital Requirement and Criteria for Licensing Approval Of Banks, September 19,2008
www.big.com.kh
Page 9 of 44
Table 5: Banks that failed to increase their paid-up capital after re-licensing
Name of Banks Closed in 2000-20025

1- Bangkok Bank 2- Thai Farmers Bank 3- Cam. Agriculture-Commercial Bank (Compulsory liquidated) 4- Phnom Penh City Bank 5- Chansavangwonk Bank Corporation 6- Rich Nation Bank (Compulsory liquidated) 7- Great International Bank 8- Global Commercial Bank 9- Peace Commercial Bank 10- Cambodia Bank International 11- Angkor Bank 12- Cambodia Farmers Bank (Compulsory liquidated) 13- Singapore Commercial Bank 14- First Oversea Bank (Compulsory liquidated) 15- Emperor International Bank 16- Standard Chartered Bank downgrade to representative office 17- Credit Agricole Indosuez Bank Banks that failed to increase their paid-up capital and voluntary close
Dated of withdrawal
08-Dec-00 03-Jul-00 08-Dec-00 08-Dec-00 31-Jul-00 08-Dec-00 08-Dec-00 08-Dec-00 08-Dec-00 31-Jul-00 31-Jul-00 31-Jul-00 19-Mar-02 19-Mar-02 04-Apr-02 01-May-02 18-Sep-02
3. CURRENT BANKING SITUATION IN CAMBODIA

Since the closure of banks that failed to increase the minimum Capital, public confidence in the banking system has been recovering. Banking system in Cambodia has made substantial progress both in the scope and scale of its activities. The bank sector plays a core role in national economic development activities. In 2007, through banking intermediation, investors mobilized around US$700 million in additional domestic capital, compared to US $300 million in 2006, which greatly contributed to Cambodias economic development. In terms of scope, over the last two years, we have seen ten newly opened commercial banks and two more specialized banks invested in the Cambodian market, in particular the entry of ANZ Royal bank as well as those of Japanese and Korean investors.
Figure 3 : Deposit and Loan from banks
USD M $3,500 $3,000 $2,500 $2,000 $1,500 $1,000 $500 $0 Deposit Loan 2000 $382 $310 2001 $455 $238 2002 $569 $269 2003 $656 $336 2004 $826 $451 2005 2006 2007 2008e
$954 $1,400 $2,250 $3,068 $582 $893 $1,592 $2,539
Source: ANZ Royal Bank, Banking sector in Cambodia, 2008
- National Bank of Cambodia, Annual Report 2007

www.big.com.kh
Page 10 of 44
However, despite steady growth and a more stable regulatory framework, Cambodias banking and financial sector remains a small part of an overwhelmingly cash-based economy, with bank deposits constituting just 18 percent of GDP in 2007, and even then concentrated mostly in the capital and larger provincial towns. The arrival of large, consumer-oriented banks such as ANZ Royal, which brought some innovative banking practices - the branches, the ATMs, has raised the bar beyond the formal regulatory framework and pushed up the standards of smaller local and regional institutions As of November 2008, the banking system in Cambodia under the National Bank of Cambodias supervisory authority, in total 25 commercial banks, six specialized banks, 17 licensed microfinance institutions, 26 registered NGOs and over 60 unregistered NGOs(6).
Table 6: Banks in operation as of November 2008
Banks Commercial Bank

1 Advanced Bank of Asia Limited
HQ & Branches
Phnom Penh(2), Siem Reap (1) Phnom Penh(11), Siem Reap(1), Sihanouk Ville(1), Pailin(1) Kampot-Kep(1), Kampong Cham(1), Banteaymeanchey(1), Battambang(1), Takeo(1), Pursat(1), Kampong Thom(1), Kampong Speu(1), Kampong Chhnang(1), Svay Rieng(1), Prey Veng(1), Rattanakiri(1), Kandal(1), Otdar Meanchey(1), Kratie(1), Koh Kong(1), Preah Vihear(1), Mondulkiri(1), Stung Treng(1) Phnom Penh(9), Siem Reap(1), Sihanouk Ville(1), Battambang(1), Poipet(1), Kampong Cham(1), Pnhom Penh(1) Phnom Penh(9), Sihanouk Ville(1), Battambang(1), Kampong Cham(1), Pailin(1), Siem Reap(1), Poipet(1), Kampot(1), Banteay Mean Chey(1), Kandal(1), Kompong Chhnag(1), Prey Veng(1), Phnom Penh(1), Siem Reap(1), Sihanouk Ville(1), Battambang(1) Phnom Penh(4), Siem Reap(1), Sihanouk(1), Phnom Penh (6),Siem Reap(1),Sihanouk Ville(1), Battambang(1), Kandal(1), Kampong Cham (1), Poi Pet (1) Phnom Penh(1) Pnhom Penh(1) Phnom Penh(1) Phnom Penh(1), Siem Reap(1) Phnom Penh(2) Phnom Penh(1) Phnom Penh(1) Phnom penh(2), Sihanouk(1), Siem Reap(1) Phnom penh(1) Phnom Penh(1), Sihanouk Ville(1), Siem reap(1) Phnom Penh(1), Siem Reap(1) Phnom Penh(1) Phnom Penh(1)
ACLEDA Bank Plc.
3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
ANZ Royal Bank Cambodia Asia Bank Ltd. CANADIA Bank Plc. Cambodian Commercial Bank Cambodian Mekong Bank Public Limited Cambodian Public Bank Camko Bank First Commercial Bank Foreign Trade Bank of Cambodia Krung Thai Bank May Bank Maruhan Japan Bank Plc. Prosperity Investment Bank Plc. Singapore Banking Corporation Ltd. Sinhan Khmer Bank Union Commercial Bank Plc. Vattanak Bank VIP Bank Khmer Union Bank
6 - National Bank of Cambodia, Banking Supervision Department Report 30, September 2008.
Page 11 of 44
22 23 24 25 1 2 3 4
Buyoong Khmer Bank Phnom Penh Commercial Bank OSK Indochina Bank Angkor Capital Bank SPECIALIZED BANKS ANCO Specialized Bank Cambodian Development Specialized Bank Ltd. First Investment Specialized Bank
Phnom Penh(1) Phnom Penh(1) Phnom Penh(1) Phnom Penh(1) Phnom Penh(1) Phnom Penh(1) Phnom Penh(1)
Rural Development Phnom Penh(1) Specialized Bank PENG HENG 5 Phnom Penh(1) S.M.E Ltd. 6 Best Specialized Bank Phnom Penh(1) Source: National Bank of Cambodia Review, No.25, 3rd Quarter 2008
Four big banks have captured most of the growth, and dominate the market7
Type of Bank
Big 4 banks Market share of 10%+ Full service with retail and commercial capabilities. More than 10 branches Generally have ATM and POS networks 75% Mid tier Market share of 2-5% Small number of branches More limited product offering Small players Market share of 1% or less Generally focused on specific market segments Includes specialized banks One branch operations Likely to be subject to consolidation push
Number of Bank
Leading Market Share
75%
19%
22
6%
Banking sector in Cambodia, ANZ Royal Bank, 2008

www.big.com.kh
Page 12 of 44
CHAPTER II BANKING MARKET POTENTIAL AND CHALLENGE

1. SERVICE PROVISION FROM MAJOR BANKS
1.a. CANADIA BANK PLC
Canadia Bank was the first joint venture between private investor and National Bank of Cambodia. It was first established as the Canadia Gold & Trust Corporation Limited on 11 November 1991. The main activities were based on gold transaction, gold plaque manufacture and credit to local merchants. On 19 April 1993, the name of the institution was changed to "Canadia Bank Ltd.", and subsequently to " Canadia Bank Plc." on 16 December 2003, as a commercial bank registered under the Ministry of Commerce and the National Bank of Cambodia. Since privatization in 1998, the bank has become one of the largest local banks. It offers various financial services through its ten branches within Cambodia and 20 international correspondent banks. The services offering by Canadia Bank include:
Deposit Account such as Current Account, Saving Account, Fixed Deposit Account in USD, Khmer Riel or Thai Baht or in Gold. Gold deposit is the only deposit account available in Cambodia. Interest is calculated in Gold value; Trade Finance Service such as the issue and advice of Letter of Credit, import / export advance drawn under Letter of Credit, Documentary Bills of Exchange and clear bill collection; Travelers Cheque; Remittance; Foreign Exchange; Private Banking which provide one-stop service to VIP customers in such service as Open new accounts (saving, fixed and current accounts), Cash deposit and withdrawal,
www.big.com.kh
Page 13 of 44
Remittances, Bankers Cheque, Bank Draft, Payroll Service, ATM Card, Credit Cards (Visa and MasterCard), Travelers Cheque;

Foreign Investors Consultancy Service on investment climate and incentives, regulations pertaining to company formation and factory establishment ; Real Estate Brokerage and Referee Services which provide brokerage and trustee services for the rental, sale and purchase of landed properties and issue performance guarantee to ensure the smooth transfer of property from buyer to seller.
Canadia Bank is a major bank aggressive in SME Loans, Constructions and Mortgages. There have been many development projects involved with Canadia Bank, from flat house to office building, from amusement park to shopping mall.
Figure 4: Canadia Bank's Loan Portfolio by Industries, December 2007 (in Million USD)
Transport and Tele communication, 11.29 Import and Export, 13.85 Service, 75.74
Agriculture, 4.22
Professional and Private Individual, 1.02
Whole Sale and Retail, 70.57
Other, 6.51
Mortgate, 43.78
Building and Construction, 87.29
Manufacturing, 32.4
Source: Canadia Bank's Annual Report with National Bank of Cambodia, 2007
The annual interest rates that applied during the year are as follows:
Type of Loan Overdrafts Short term loans Long term loans Venture capital loans Micro-financing loans Mortgage loans Credit card facilities 2007 6% - 18% 7.2% - 21.6% 7.2% - 16.8% 5%-6.5% 12% - 21.6% 7.2% - 12% 18% - 22% 2006 6% - 18% 6.0% - 24% 7.2% - 18.0% 4%-6% 12% - 21.6% 7.2% - 18% 18% - 22%
1.b. ACLEDA BANK

ACLEDA Bank Plc. was originally founded in January 1993, as a national NGO for micro and small enterprises' development and credit. On 7th October 2000 the Microfinance Institution upgraded to specialized bank and formally become a commercial bank on 01December 2003 and
Page 14 of 44
renamed as ACLEDA Bank Plc to enable it to provide full banking services according to the needs of the customers and the market. ACLEDA Bank Plc. 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). Currently ACLEDA has the largest branch network in Cambodia. ACLEDA Bank offers a broad range of banking products and services both personal and business banking. Deposits Service ACLEDA Bank provides many kinds of deposit service such as: Current Account, Demand Deposit, Savings Account, Fixed Deposit, Corporate Deposit, and Trust Account for Real Estate, Euro Flex Account, and Trust Services. Trust Services in ACLEDA Bank is a unique deposit service that ACLEDA Bank is responsible for maintaining, administering, and arranging the depositor's or third party's money deposited in the account to use in various purposes that are set forth in an agreement with the bank. The interest rate is higher than the normal saving account. ACLEDA Bank currently provides three kinds of Trust Services: Individual Retirement Account, Health Savings Account, and Education Savings Account. Credits Service ACLEDA Bank offers many kinds of credit service such as Micro Business Loan, Small Business Loan, Medium Business Loan, Personal Loan, Overdraft, Overdraft Facility for Depositors, Revolving Credit Line, Credit Line, and Housing Loan. Micro Business Loan Micro Business Loan by ACLEDA offers to both individual and group up to USD1,500 for the maximum period of 12 months with interest rate from 2.75% per month or 33.0% per annum. Small Business Loan ACLEDA Bank offers small business loan up to 24 months for loan size greater than USD1,500 to less than USD10,000 with monthly interest rate from 2.5%. Medium Business Loan Medium Business Loan can have up to 24 months for loan size greater than or equal USD 10,000 to less than USD 30,000; and up to 48 months for loan size greater than or equal to USD 30,000 with monthly interest rate from 2.0%. Personal Loan Client with stable income stream can receive loan up to USD30,000 with monthly interest rate at 1.7% for a maximum period of 24 months for personal purpose such as vehicle, furniture and so on. Overdraft ACLEDA Bank offers Overdraft to company for any emergency and unpredictable event and available from USD5,000 with loan period up to 360 days. The requirements are:
Have a potential business with good status, legal profitability; Having document presenting company's fixed assets, inventory card, or other effective documents to deposit as collateral;
www.big.com.kh
Page 15 of 44
Have a Current Account opening with ACLEDA Bank; Offer income statement and balance sheet to ACLEDA Bank monthly.
Overdraft Facility for Depositors

Overdraft Facility for Depositors is for individual customers to make withdrawal more than the amount in their account balance with loan period up to 12 months. The maximum loan criteria is

50% of last month salary for customers who are using Payroll Service with ACLEDA Bank, or 50% of average balance customers had in their account for the last consequential three months and up to USD500 or equivalent to KHR or THB.
Revolving Credit Line

Revolving Credit Line is a short term loan provided to those customers with collateral. Customers can make withdrawal up to credit limit and the term specified in the Credit Line agreement and may opt to repay at the end of loan period.
Trade Finance
ACLEDA bank is currently providing Trade Finance Services including Document Collection on import and export, Document Credit on import and export, Bank Guarantee on Shipping, bid, payment, advance payment, performance and retention money:
Other Service includes local and international fund transfer, payroll service, tax payment
service, and so on. Acleda Bank seems less aggressive in Real Estate Loan, but has an enormous share in small and medium loan as the bank has the largest branch network.
Figure 5: Acleda Bank's Loan Portfolio by Industries, December 2007 (in Million USD)
Agriculture, 35.43 Manufacturing, 14.16
Service, 80.57 Commerce, 184.89
Source: ACLEDA's Annual Report with National Bank of Cambodia, 2007
www.big.com.kh
Page 16 of 44
1.c. CAMBODIAN PUBLIC BANK

Cambodian Public bank is one of the oldest and the biggest bank in Cambodia and started its business in Cambodia on 25 May 1992. The bank had been awarded "Bank of the Year" by the Banker for five consecutive years from 2001 to 2005 prior to the arrival of ANZ Royal Bank. The Bank is a wholly-owned subsidiary of Public Bank Group which is one of the largest and strongest domestic banking groups in Malaysia. As at 31 December 2006, the Group's shareholders funds stood at USD2.58 billion, the second highest amongst domestic banking groups in Malaysia while its assets size amounts to USD42.22 billion. The Cambodian Public Bank offers a wide range of banking and financial services Deposit Accounts: Offers interest bearing Savings and Fixed Deposits accounts and noninterest bearing Checking (Cheque) account.

Credit Facilities: Offers Overdrafts, Term Loans, Housing Loans, Letter of Credit, Trust Receipt, Bank Guarantees, etc. Trade Financing: Provides a complete range of import and export services and financing. Remittance: Provides international and domestic money transfer including telegraphic transfer and Drafts. Foreign Exchange: Encasement of Travelers Cheque and Currency exchange of major world currencies. ATM Card: ATM Online Service at various branches. Credit Card - Merchant Acquiring: Accept VISA and MASTER Cards encashment & merchant
Figure 6: Cambodian Public Bank's Loan Portfolio by Industries, December 2007 (in Million USD)
Construction, 53.1 Real Estate, 27.61
Agriculture, 16.53 Im port and Export, 5.01 Others, 27.21
Consum er Item s, 39.27
Whole Sale and Retail, 89.70 Service, 80.12
Source: Cambodian Public Bank's Annual Report with National Bank of Cambodia, 2007
www.big.com.kh
Page 17 of 44
1.d. ANZ ROYAL

ANZ Royal Bank is a newly established bank in 2005 by Australia and New Zealand Banking Group Limited (ANZ), owning 55% of total shares, and the Royal Group of Cambodia, 45% of total shares. ANZ Royal Bank is currently the leader of ATM network and Point of Sale (POS) terminal, and the only bank that currently provides internet banking in Cambodia. The internet banking, however, remains in limited service, and the deposit through ATM is still not yet possible. ANZ Royal Bank has been awarded the 2007 Financial Insights Innovation Award by Financial Insights Asia Pacific based in Singapore, following the award given by the London publication The Banker as the Cambodian Bank of the Year in 2006. The current services provided by ANZ Royal are mainly targeting on Personal and Small businesses. For personal banking, ANZ Royal Bank provide such deposit service as
Access account
The ANZ Royal Bank Access Account is a non-interest deposit, but allows customer with unlimited transaction. Instead of paying interest to customer, the bank charges the monthly account service fee of $1.00 per month.
Saving account
The ANZ Royal Bank Saving Account is an interest payable account and no monthly account service fee. However, transaction is limited to only one transaction per month, and each additional transaction, except deposit, leads to a US$1.00 fee charge.
Term deposit
ANZ Royal Bank Term Deposit Accounts offer a bit higher rate of interest but compare to other banks, the rate offered by ANZ Royal is among the lowest and any withdrawal before maturity date will incur a charge of US$25.00. The minimum balance is also high at USD2,000.
Premier account
The premier account is for high class customer who has following criteria: Aggregate Deposits held in one or more ANZ Royal Bank accounts totaling US$25,000
subject to maintaining a minimum balance of US$1,000 in an ANZ Royal Bank Premier Account; or
Annual Premiership fee of US$250 subject to maintaining a balance of USD 1,000 in an
ANZ Royal Bank Premier Account; or

Combined deposit and loan amount of US$150,000 with ANZ Royal Bank subject to
maintaining a minimum balance of US$5,000 in an ANZ Royal Bank Premier Account. Premier account members receive special hospitality in a VIP room by the professional staff of the bank.
Foreign currency account

With minimum opening balance of US$5,000, ANZ Royal offers foreign currency deposit in Australian Dollar, Euro, New Zealand Dollar, British Pound, Japanese Yen and Thai Baht.
Page 18 of 44
Credit Service
ANZ Royal provides the lowest interest rate and longest loan repayment period up to 15 years for its loan. The bank, however, imposes the strictest requirement among major banks for its client. ANZ Royal Bank currently provides home loan and home equity loan. The Home Equity Loan is a loan secured by existing owner-occupied residential property which can be used to renovate or upgrade the current property, buy a vehicle for personal use, invest in a simple business (existing or new), support someone's education or other personal purposes acceptable to ANZ Royal Bank.
Table 7: Credit Service of ANZ Royal Bank to Personal Banking Home Loan Home Equity Loan
Description
The Standard Home Loan product designed for customers who are purchasing or building a property to live in.
The Home Equity Loan is a loan secured by existing owner-occupied residential property which can be used to renovate or upgrade the current property, buy a vehicle for personal use, invest in a simple business (existing or new), support someone's education or other personal purposes acceptable to ANZ Royal Bank. 10.9% p.a. (variable) Variable Yes None $100 or 1% of loan amount, whichever is higher. (For ANZ Royal Bank @ work customers $100 or 0.50% of loan amount, whichever is higher. ) Property valuation $80-160 Legal Fee $264 inclusive of VAT Mortgage registration $160-200 Fire insurance (must be renewed annually) 50% No minimum & no maximum 15 years
Interest Rates #
9.5% p.a. (variable) Variable Yes None $100 or 1% of loan amount, whichever is higher. (For ANZ Royal Bank @ work customers - $100 or 0.50% of loan amount, whichever is higher. ) Property valuation $80-170 Legal Fee $264 inclusive of VAT Mortgage registration $160-200 Fire insurance (must be renewed annually) 50% No minimum & no maximum 15 years
Interest Type
Additional Repayments Early Repayment Penalty
Loan Approval Fee
Other associated Costs One-time fees payable when Letter of Offer is issued except insurance* Maximum Loan amount (% of property value) Loan amount Maximum Loan Term
Other Service includes Telegraphic money transfer, Bank cheque, inward and out ward bank drafts, and Foreign exchange service.
Page 19 of 44
For Business banking, ANZ Royal Bank provides such service as Overdraft, transactional banking, treasury/markets, and trade finance. Transaction banking includes Business Cheque Account, Cash management Account, Foreign Currency Accounts, Electronic Banking and Payroll Services, and Point of Sale (EFTPOS) Treasury/markets include foreign exchange service, overseas telegraphic transfers and commodity trading risk management. The following are some of the commodities where ANZ Royal Bank provides Risk Management Services:
o Precious Metals: Gold, Silver, Platinum Palladium. o Base Metals: Aluminum, Copper, Nickel, Zinc, Tin, Lead. o Energy: Crude oil, Gas oil, Jet Kerosene, Fuel Oil, Thermal Coal. o Agriculture: Barley, Canola, Cocoa, Coffee, Corn, Cotton, Palm Oil, Sorghum, Soy Complex
(comprising Soybeans, Soy Meal & Soy oil), Sugar, Wheat.

o Power: Electricity o Environmental Markets: Carbon Credits.
Trade Finance includes Import Letters of Credit, Export Letters of Credit, Import and Export Documentary Credits, Trade Finance Loans (Local and Foreign Currency), Foreign Currency Accounts, Export Finance, Forward Exchange Contracts, Export Collections, Guarantees (various bonds), Standby Letters of Credit.
Figure 7: ANZ Royal Bank's Loan Portfolio by Industries, December 2007 (in Million USD)
Food Industries, 2.5 Construction, 5.03 Real Estate, 9.37
Import and Export, 2.38
Others, 34.4 Consumer Items, 15.68
Service, 50.30
Whole Sale and Retail, 26.59
Source: ANZ Royal Bank's Annual Report with National Bank of Cambodia, 2007
www.big.com.kh
Page 20 of 44
2. LOAN AND DEPOSIT IN BANKING

By the end of 2007 there were 197,337 borrowers, an increase of 19.6% compared to 2006 when there were only 164,931 borrowers. The credit to GDP ratio went up to 18.3% in 2007, while the ratio was 12.2% in 2006 and only 8.5% in 2004. Deposits to GDP rose from 17.9% in 2006 to 26.8% in 2007. By the year 2007, total credit granted to customers amounted to KHR 6,335 billion (US$1,582 million), an increase of 77% compared to 2006 when total credit was KHR 3,579 billion (US$882 million). The economic sectors that benefited from bank lending include: the services sector, with an increase by 57%; the wholesale and retail sector, by 75%; the real estate and public utilities, by 65%; the industry sector, by 52%; and the construction, by 138%. In addition to a rapidly expanding commercial sector, the nations limited consumer-banking market is poised for rapid growth. Consumer credit is now rarely used as most purchases, even large ones, are made in cash. Banks are eager to develop and expand new loan products, such as mortgages and hire purchase loans in order to tap the vibrant consumer markets. Alongside the continuing financial-sector reform and development, banks will enjoy an increasing number of options to fund its rapid growth. Deposits are likely to remain on the uptrend by at least 10-15% per annum. Other funding options include forming joint ventures with offshore banks and raising funds in the upcoming Cambodian stock market and credit market
Figure 8: Credits and Deposits to GDP
30% 25% 20% 15.1% 15% 10% 5% 0% 2004 8.5% 14.6% 12.2% 9.3% 17.9%
26.8%
18.3%
2005 Credit
2006 Deposit
2007
Source: National Bank of Cambodia, Banking Supervision Annual report 2007 Figure 9: Growth in Loan and Deposit
www.big.com.kh
Page 21 of 44
12,000.00 10,000.00 59.8% Billion KHR 8,000.00 9,922.47 3,578.44 6,000.00 50.7% 4,000.00 2,000.00 2003 2004 Deposit 2005 Loan 2006 2007 1,333.71 2,632.16 3,327.79 54.5% 2,347.34 1,813.69 5,687.04 62.9% 63.9%
70.0% 65.0% 60.0% 55.0% 50.0% 45.0% 40.0%
6,335.88
Source: National Bank of Cambodia, Banking Supervision Annual report 2007
3,927.22
Loan to Deposit Ratio
3. PROFITABILITY
The Profitability ratio of the whole banking system has shown consecutive increases in profits up until the present time. The important ratios for the measurement of a banks earning capacity are the Return on Assets (ROA) and Return on Equity (ROE). In 2007, ROE stood at 16.3% and ROA was 2.8%. Two factors underpin banking sector profitability, firstly, salary expenses are low (a bank officer is typically paid US$500 per month); secondly, lending spreads are high at 4-5% for prime loans and 11-12% for small-business loans. The bank's profit for 2007 derived from the increase in non-interest income by 71% and interest income by 79%. Besides, recoveries from non-performing loans look a significant proportion of 30% of the current years profit.
www.big.com.kh
Page 22 of 44
Table 11 Key Financial Dat a (million of KHR) :

Name of Bank
Commercial Bank
Cambodian Public Bank Canadia Bank ANZ Royal Bank Acleda Bank Foreign Trade Bank Bank May Bank Vattanac Bank Union Commercial Bank Krung Thai Bank Cambodia Mekong Bank First Commercial Bank Corporation Advance Bank of Asia Shinhan Khmer Bank Cambodia Asia Bank Camko Bank 983,973 1,522,579 830,301 900,576 896,493 519,549 339,710 287,390 423,585 203,423 109,339 210,930 150,818 111,765 89,866 7,580,297 65,195 26,938 16,906 15,684 11,030 135,753 2,260,384 2,242,342 2,241,988 1,899,200 882,057 651,741 579,078 525,085 484,253 286,990 248,674 239,441 195,825 163,154 146,180 129,027 94,792 13,270,211 73,534 28,623 20,503 18,771 12,788 10,688 9,986 174,893 81,140 164,491 89,254 121,710 50,000 52,741 54,364 52,741 57,407 52,741 60,855 52,741 52,741 52,741 52,741 1,048,408 28,139 15,417 14,200 12,171 10,548 80,475 180,135 162,302 160,120 120,090 52,039 52,039 53,640 52,039 56,642 52,039 140,105 52,039 52,039 72,054 52,039 52,039 52,039 1,413,439 27,871 15,211 14,011 20,015 12,009 10,408 12,009 111,534 1,240,226 1,829,826 2,085,990 1,377,646 901,616 544,640 458,937 415,486 384,182 123,021 144,801 154,336 132,164 88,934 88,527 32,260 67,648 42,315 5,683,448 10,080,295 781,955 1,200,973 755,565 497,249 789,569 421,837 235,248 202,273 339,788 90,657 56,330 134,248 87,599 57,897 2,655 594 336 3,585 3,446 3,446 631,424 833,509 209,732 633,080 177,104 102,608 84,022 165,988 186,526 98,505 11,025 47,736 51,335 55,375 45,602 3,333,571 27,075 19,274 12,985 9,904 3,652 72,890 1,442,224 1,335,256 575,581 1,248,409 244,796 160,794 127,455 328,215 264,210 65,978 28,988 76,194 77,990 49,066 8,568 46,446 15,922 6,096,092 36,698 25,080 17,786 3,066 8,579 6,268 120 97,597 98,129 63,215 (28,344) 24,190 23,260 26,889 38,090 27,568 19,499 21,639 (44,933) 21,718 (28,172) 10 2,627 265,385 2,751 644 1,528 2,843 54 7,820 173,569 152,358 (25,837) 41,352 52,713 54,663 53,473 49,946 36,805 27,915 (39,671) 30,548 (15,553) (18) (3,718) 4,339 (6,038) 586,846 3,423 2,296 3,288 (2,956) 690 253 (2,063) 4,931 Total Asset 2006 2007 Capital Amount 2006 2007 Customer's Deposit 2006 2007 Loan & Advance to Cus 2006 2007 Profit After Tax 2006 2007
Sub Total Specialized Bank

Rural Development Bank Specialized Bank specialized Bank Specialized Bank Industrial specialized Anco Specialized Bank Specialized Bank
Sub Total
www.big.com.kh
Page 23 of 44
The interest rates in Cambodia are determined by the principal rule: supply and demand. The National Bank of Cambodia does not have any policy to control or decide the interest rates of banking institutions. Since the Global Economic Crisis become evident in Cambodia, banks are competing to offer higher term deposit rate to customers. The one-year term deposit with ACLEDA bank has now reached 7.5%, while a smaller bank such as ABA provides a slightly higher rate of 8.0% for the same term. Early 2008, the highest rate was just 6.0%.
Figure 10: Profitability Ratio
18% 16% 14% 12% 10% 8% 6% 3.9% 4% 1.7% 2% 1.1% 0% 0.6% 2001 2002
16.3% 14.2%
7.9% 5.7% 3.8% 0.9% 2003 1.2% 2004 1.8% 2005 2.3% 2.8% 2007
2006
Return on Equity
Return on Assets
Figure 11: Net Profit of all Banks
100,000 in miliion US$ 80,000 60,000 40,000 20,000 0 Net Profits Percentage change 73% 62% 23,813 40% 8,512 13,755 2003 8,512 40% 2004 62% 2005 73%
90,820 140% 129% 120% 100% 54,458 67% 80% 60% 40% 20% 2006 129% 2007 67% 0%
13,755 23,813 54,458 90,820
www.big.com.kh
Page 24 of 44
Table 8: Annual Interest Rate Payment on Deposits, September 2008 Name of Bank Saving Riel 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 1 2 3 4 5 6 Advanced Bank of Asia Limited ACLEDA Bank Plc. ANZ Royal Bank Cambodia Asia Bank Ltd. CANADIA Bank Plc. Cambodian Commercial Bank Cambodian Mekong Bank Public Limited Cambodian Public Bank Camko Bank First Commercial Bank Foreign Trade Bank of Cambodia Krung Thai Bank May Bank Maruhan Japan Bank Plc. Prosperity Investment Bank Plc. Singapore Banking Corporation Ltd. Shinhan Khmer Bank Union Commercial Bank Plc. Vattanak Bank VIP Bank Khmer Union Bank Buyoong Khmer Bank Phnom Penh Commercial Bank OSK Indochina Bank Angkor Capital Bank SPECIALIZED BANKS ANCO Specialized Bank Cambodian Development Specialized Bank Ltd. First Investment Specialized Bank Rural Development Bank Specialized Bank PENG HENG S.M.E Ltd. Best Specialized Bank WEIGHTED AVERAGE
4.00% 0.50% 2.00% 1.25% 3.50% 1.00%
Fixed 1 month Riel USD

8.20% 5.00% 3.55% 4.70% 4.00% 4.05% 3.00% 3.50%
USD
1.00% 2.00% 0.25% 2.50% 0.75% 0.50% 2.00% 1.00% 1.50% 0.40% 0.75% 0.25% 0.75% 1.50% 2.00% 0.50% 1.00% 1.00% 1.00% 0.30%
3 months Riel USD

8.25% 6.00% 4.60% 5.00% 1.50% 5.00% 5.00% 4.70% 4.00% 4.50% 3.00% 2.75% 4.25% 4.00% 1.35% 4.50% 3.00% 0.75% 2.00% 3.00% 4.00% 3.50% 3.15% 4.00% 4.25% 4.00% 4.00%
6 months Riel USD

8.00% 5.55% 6.00% 6.00% 6.00% 5.055 5.00% 5.00% 3.255 3.25% 6.00% 5.00% 1.45% 5.50% 4.00% 1.00% 2.50% 3.50% 4.75% 4.00% 4.00% 5.00% 5.25% 4.00% 5.00%
12 months Riel USD

9.50% 6.70% 7.00% 8.00% 6.50% 5.35% 6.00% 6.50% 3.25% 3.50% 6.00% 6.00% 1.55% 6.50% 5.00% 1.25% 3.25% 3.75% 6.00% 5.00% 5.00% 6.00% 6.00% 3.90% 6.00%
2.25% 4.00% 3.00% 1.25% 1.00% 1.75% 2.50% 3.00%
1.50%
0.75% 2.00%
3.00% 3.55%
4.00% 4.60%
5.00% 5.55%
6.25% 6.50%
3.05% 3.75% 4.50% 3.00%
1.00%
1.00%
1.50%
1.00%
3.50%
3.00%
4.00%
3.50%
5.00%
4.00%
6.00%
5.00%
1.90%
1.02%
4.51%
3.39%
5.22%
4.09%
6.44%
4.90%
7.26%
5.62%
www.big.com.kh
Page 25 of 44
Table 9: Annual Interest Rate on Loan, September 2008
Name of Bank
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 1 2 3 4 5 6
1 month USD Riel
3 months USD Riel
6 months USD Riel
12 months USD Riel 18.00% 18.00% 9.80% 18.00% 18.00% 18.00% 14.40% 18.00% 13.00% 15.00% 18.00% 18.00% 13.00% 15.00% 15.00% 12.00% 18.00% 15.00% 13.00% 15.00% 15.00%
Advanced Bank of Asia Limited 14.00% 15.00% 16.00% ACLEDA Bank Plc. ANZ Royal Bank Cambodia Asia Bank Ltd. Canadia Bank Plc. 24.00% 18.00% 24.00% 18.00% 24.00% 18.00% Cambodian Commercial Bank 18.00% 18.00% 18.00% Cambodian Mekong Bank Public Limited 14.40% 14.40% 14.40% Cambodian Public Bank 18.00% 18.00% 18.00% Camko Bank Ltd First Commercial Bank 15.00% 15.00% 15.00% Foreign Trade Bank of Cambodia 18.00% 18.00% 18.00% 18.00% 18.00% 18.00% Krung Thai Bank May Bank Maruhan Japan Bank Plc. Prosperity Investment Bank Plc. Singapore Banking Corporation Ltd. 18.00% 18.00% Sinhan Khmer Bank Union Commercial Bank Plc. 15.00% 15.00% Vattanak Bank 11.00% 12.10% 12.47% VIP Bank 15.00% 15.00% 15.00% Khmer Union Bank Buyoong Khmer Bank Phnom Penh Commercial Bank OSK Indochina Bank Angkor Capital Bank SPECIALIZED BANKS ANCO Specialized Bank Cambodian Development Specialized Bank Ltd. 15.00% 15.00% 15.00% First Investment Specialized Bank 18.00% 18.00% Rural Development Specialized Bank PENG HENG S.M.E Ltd. 24.00% 24.00% 24.00% Best Specialized Bank WEIGHTED AVERAGE 18.89% 16.23% 18.89% 16.38% 18.89% 16.40% Source: National Bank of Cambodia, Banking Supervision Annual report 2007
24.00%
24.00%
15.60% 15.00% 18.00% 12.00% 24.00%
15.00%
22.45%
15.86%
Robust growth and strong margin

Although bank loans have expanded at an average annual rate of 43% over the past five years, Cambodias financial sector is still in its infancy with a huge growth potential. At year-end 2007, the private-sector lending was a mere US$114 per capita, which is comparable to Thailand in the early 1970s, Indonesia and the Philippines in the mid- to late-1980s and Vietnam in 2000.
Page 26 of 44
Despite efforts to increase lending to the poor, only 10 percent of the population can access to the formal credit and are often forced to rely on high interest, according a report from Phnom Penh Post in December 2008. This create an opportunity for existing banks expansion and by 2014-15, the domestic banking sector is likely to triple from its current size. When the banking sectors of the aforementioned countries were comparable in size to that of Cambodia at present, they then expanded at an average annual rate of 24-26% over the subsequent five years. If Cambodia achieves a similar growth, private loans will surge to US$5billion over the next five years, but will still remain less than 40-45% of its GDP.
Table 10: Relative development of the Asian regions banking sector
Cambodia Thailand Indonesia Philippines Vietnam
Current loans per Capita 114 2,356 412 440 515
As % of GDP 19 75 25 33 80
Loans at more than US$100 per capita 4Q07 Early 1970s 1985 1988 2000
Loan growth in subsequent 5 years (%) Forecast 25-30 15.5 22.4 25.1 28.1
4. CHALLENGE IN BANKING SECTOR

The development of banking services is good news for both customers and investors. However, these services are associated with risks that need to be monitored and supervised in order to safeguard deposits and the system as a whole. Preconditions for banking development in particular, and financial development and economic growth in general, comprise four elements which are effective governance; property rights and their protection; enforcement of contracts and resolution of commercial disputes; and human capital development. The challenge ahead for banking sectors are improving profitability, rising non-performance loan, reinforcing technology, legal framework and risk management, human resources, greater customer orientation, corporate governance, and international standards. (i) Improving profitability
The most direct challenge is increasing competition and narrowing of spreads and its impact on the profitability of banks. The challenge for banks is how to manage with thinning margins while at the same time working to improve productivity which remains low in relation to global standards. Thus, with falling spreads, rising provision for Non-performing Assets and falling interest rates, greater attention will need to be paid to reducing transaction costs. This will require tremendous efforts in the area of technology and for banks to build capabilities to handle much bigger volumes. (ii) Rising Non-performance Loan
Property market downturn will increase non-performing loans (NPLs). Latest supervision report from the National Bank of Cambodia showed NPLs rising from US$58 million in June 2008 to almost US$88 million by the year-end. That was 3.68% of banks' loan portfolios, which stood at close to US$2.4 billion at the end of 2008.
www.big.com.kh
Page 27 of 44
(iii)
Reinforcing technology
Technology has thus become a strategic and integral part of banking, driving banks to acquire and implement world class systems that enable them to provide products and services in large volumes at a competitive cost with better risk management practices. The pressure to undertake extensive computerization is very real as banks that adopt the latest in technology have an edge over others. Customers have become very demanding and banks have to deliver customized products through multiple channels, allowing customers access to the bank round the clock. (iv) Legal framework and risk management
Banking business is exposed to credit risk, market risk and operational risk, which remain viable. The remaining issues and risk are: Lack of reliable information in lending environment- business credit worthiness High credit risk (NPL,LE, and real estate collateral and personal guarantees which could lead to systemic risk); Poor collateral registration and valuation; High operating cost and low competition as a result of significant market segmentation Slow progress of money market development Lack of legal framework to enforce commercial contracts
In this context, banks are upgrading their credit assessment and risk management skills and retraining staff, developing a cadre of specialists and introducing technology driven management information systems. At the moment, Cambodias court system remains weak as commercial court system has yet to be set up to fulfill the function of enforcing contracts and resolving commercial disputes. In order to strengthen the court systems effectiveness in handling commercial disputes, the Commercial Contract Law must be enacted and a commercial court system must be developed and operated under a rule of law to address this fundamental need in Cambodias financial and economic system. (v) Human Resource
The far-reaching changes in the banking and financial sector entail a fundamental shift in the set of skills required in banking. To meet increased competition and manage risks, the demand for specialized banking functions, using IT as a competitive tool is set to go up. Special skills in retail banking, treasury, risk management, foreign exchange, development banking, etc., will need to be carefully nurtured and built. Thus, the twin pillars of the banking sector i.e. human resources and IT will have to be strengthened. Cambodias banking sector development has been and continues to be significantly affected by human capital constraints resulting from its historical development over the past half century or so. Progress is being made, with improvements to education at the primary, secondary and tertiary level, as well as the development of professional programs such as those relating to accounting and auditing. This foundation, however, requires continuing and long-term efforts. (vi) Greater customer orientation
www.big.com.kh
Page 28 of 44
In todays competitive environment, banks will have to strive to attract and retain customers by introducing innovative products, enhancing the quality of customer service and marketing a variety of products through diverse channels targeted at specific customer groups. This also extends more widely to efforts directed towards consumer education regarding the benefits of formal finance while at the same time raising awareness of potential risks. (vii) Good corporate governance
Banks have to be conscious of their responsibilities towards good corporate governance. Following financial liberalization, as the ownership of banks gets broad based the importance of institutional and individual shareholders will increase. In such a scenario, banks will need to put in place a code for corporate governance for benefiting all stakeholders of a corporate entity. (viii) International standards
Introducing internationally followed best practices and observing universally acceptable standards and codes is necessary for strengthening the domestic financial architecture. This includes best practices in the area of corporate governance along with full transparency in disclosures. In todays globalised world, focusing on the observance of standards will help smooth integration with regional financial markets.
www.big.com.kh
Page 29 of 44
CHAPTER III BANKING REGULATION AND LICENSING

1. CURRENT BANKING REGULATIONS
The Law on Banking and Financial Institution of Cambodia was approved by the National Assembly on 19 October 1999 and promulgated on 19 November 1999. This law is comprised of 24 Chapters and 76 Articles. According to the Law on Banking and Financial Institution, banking operation includes: i. Credit operations for valuable consideration, including leasing, guarantees and commitments under signature;
ii. The collection of non-earmarked deposits from the public; iii. The provision of means of payment to customers and the processing of said means of payment in national currency or foreign exchange. An entity carrying out only one of these three basic activities, or only one component of each of these three basic activities, shall be known as a Specialized Bank. Banks as defined above may, on their own behalf and for their customers, either directly or indirectly by participating in one or more specialized institutions, carry out securities transactions which constitute financial intermediation, such as: i. Taking deposits for the purpose of subscribing or purchasing securities, pursuant to instructions received from individual customers or from open-end investment companies, Subscribing in and trading securities,
ii.
iii. Custody of securities, iv. Individual or collective management of securities, v. Underwriting of securities upon their issuance, vi. Financial engineering, vii. Trading in derivatives, and viii. All manner of securities transactions on their own behalf, in their capacity as commercial companies and in compliance with the laws and regulations in force. Article 9 and Article 10 focused on: i. The banking and financial institutions defined in Chapter I, and hereinafter referred to as covered entities, shall be subject to the provisions of this law.
Brothers Investment Group Co., Ltd. Page 30 of 44
www.big.com.kh
ii. No person other than a covered entity may carry out banking operations on a regular basis. iii. No person other than a covered entity may make use of a business name, corporate name, and advertising or, in general, any expression implying that it is an institution authorized to carry out an activity subject to authorization in accordance with the provisions of this law. Covered entities shall comply either with the provisions of ordinary commercial law or with the provisions of the special legislation applicable to noncommercial companies, as well as with the provisions of this law. In case of conflict, this law shall prevail. Chapter III of this Law defines covered entities as follows: A covered entity shall be incorporated either as a public company under commercial law or as a cooperative or a mutual noncommercial society subject to special statute. Cooperatives or mutual societies shall belong to a common federative body called a central body. Central bodies shall be responsible for ensuring cohesion among the entities affiliated with their network as well as the smooth functioning thereof. To this end, they shall take all necessary measures, in particular to safeguard the liquidity and solvency of each of these institutions and of the network as a whole. The central bodies themselves are considered as covered entities. A covered entity may be locally incorporated in Cambodia or be a branch of a foreign bank. With prior approval of the supervisory authority, a foreign bank may open an information, liaison or representative office in the Kingdom of Cambodia, which office shall not be entitled to carry out banking operations or financial intermediation and canvassing operations. Such establishments may be locally incorporated or be a simple entity, a delegate person, or an office, and shall be so entered in the Trade Registry. Such offices may use the business name of the foreign bank they represent. An authorization is given for a period of two years, which may be renewed once only. Banks can only operate in Cambodia if they get license from the National Bank of Cambodia. Before issuing a license, the supervisory authority shall ensure: 1. The qualifications of the shareholders and the accuracy of their reported financial position; 2. The ability of the principal shareholders to fulfill, jointly and severally, their obligation to strengthen the bank own funds if required to do so in accordance with the provisions of Article 27 of this law; 3. The adequacy of human, technical, and financial resources for the planned activities. The supervisory authority shall be aware of the reciprocity offered by other countries when the shareholders of a locally incorporated bank or the head offices of branches of foreign banks are from said countries. Minimum Capital and Solvency are very important when opening a bank in Cambodia. According to this law Article 16 and 17 state that;
www.big.com.kh
1. Before obtaining a license, a covered entity that is locally incorporated as a company or a noncommercial entity, whatever its legal form, must have fully paid-up initial capital at least equal to a sum fixed by the supervisory authority. 2. Before obtaining a license, a branch of a foreign bank must have a fully paid-up capital endowment at least equal to the minimum capital of a covered entity locally incorporated as a company. 3. The minimum capital shall be fixed by a regulation issued by the National Bank of Cambodia. A portion of the minimum capital, equal to a percentage prescribed by a regulation issued by the National Bank of Cambodia, shall be permanently deposited with the National Bank of Cambodia as a guarantee deposit. The minimum capital of commercial banks shall amount at least to KHR 50 billion (US$13 million). The above amount has been determined on the basis of SDR = riel 5,616. The guarantee deposit maintained with the National Bank of Cambodia shall amount at least to five percent of the minimum capital. 4. A covered entity that is either locally incorporated or operating as a branch of a foreign bank, must at all times be able to prove that its assets minus related potential losses and intangibles exceed its liabilities to third parties by an amount at least equal to the minimum capital. Covered entities must also observe a solvency ratio, the level of which shall be fixed by the supervisory authority in compliance with international standards. The ratio shall be calculated as a proportion of the covered entity net worth in relation to its risks. The Prakas on paid-up capital and conditions of license application No B7-08.193 PK, dated on 19September 2008 noted that; 1- The minimum capital of commercial banks shall amount at least to KHR150 billion. 2- The minimum capital of specialized banks shall amount at lease to KHR 30 billion.
2. KEY CRITERIA TO GET LICENSE

2.a. SPECIALIZED BANK
According to PRAKAS No B700-05 ON LICENSING OF RURAL CREDIT SPECIALIZED BANKS dated on 11 January 2000, Specialized Banks as defined in Chapter I of the Law on Banking and Financial Institutions (LBFI) and in accordance with Article 14 of this law must obtain a license from the National Bank of Cambodia (NBC) before starting business. An applicant for a license of specialized bank shall take one of the legal forms provided for in Chapter III of the Law on Banking and Financial Institutions. Before obtaining a license, an applicant must show a minimum registered capital a least equal to a sum fixed by the relevant Prakas No. B7-08-193 PK, issued by the National Bank of Cambodia.
A- PROCEDURE FOR SUBMITTING A LICENSE APPLICATION
www.big.com.kh
The application for a license8 shall be drawn up by a dully authorized individual (manager or person expressly empowered to such effect) and shall indicate the following: (a) (b) (c) (d) (e) (f) (g) (h) Name or business name of the institution; Register address of the headquarters; Legal form and the articles of association or other founding instrument; Type of securities representing the capital, and connection between the holding of such securities and the exercise of voting rights; Amount of authorized and paid-in equity capital; Distribution of shares and voting rights, and possible agreements between shareholders acting in concert with a view of directing the policy of the bank. Capital Contributors which will hold 5 percent or more of the voting rights must provide the information listed in article 6 of this Prakas; Identity of at least two persons responsible for the effective direction of the specialized banks business. These designated managers must fill in the curriculum vitae and questionnaire appended in Annex II and furnishes a copy of their policies records; Identify of the members of the decision-making body If the legal entity for which the application is made has already been founded, provided a description of its business and certified copies of its last three audited balance sheets. Description of the planned activity over the next three years: Nature and volume of the difference types of lending liable to appear on the balance sheet, and other possible service offered to customers or members (for loans: nature, form, purpose, main terms and conditions, annual volume, and amount outstanding), Type of clients that the institute intends to seek; Nature of planned financial resources: own funds, subsidies, subordinated debt, deposits, borrowing etcAs appropriate, specify the nature and ownership of these resources in the event of any ambiguity (Subordinated debt for example); Likely number of employees over the next three years and corresponding payroll, the break down of staff by category; Location of existing branches or planned branches, Planned organization and resources, especially as regards accounting procedures and computer system; and Balance sheet and profit and loss account forecasts for the next three accounting periods. Forecast level of main prudential ratios (as defined by the NBC) at the end of the next three accounting periods.
(i) (j)
(k)
(l)
Internal audit:
8-
A letter of application for obtaining a license (Article 14 of the LBFI) for notification purposes (Article 23 of the LBFI) or to obtain prior authorization (Article 24 of the LBFI), in compliance with the model letter provided in Annex I, must be submitted.
www.big.com.kh
Planned internal audit organization for application of provision of Article 43 of the Law on Banking and Financial Institutions. Identity of proposed external auditors, nature of assignments given to external auditors.
Capital contributors holding 5 percent or more of the capital or the voting rights of institution must provide the following information: (a) (b) (c) (d) (e) (f) Identity of the capital contributor; Indicate the amount and percentage of the proposed participation and its equivalent in voting rights; Describe the activities of the capital contributor; State whether the capital contributor and the companies possibly associated with it carry on a financial activities; Indicate the internal and external audit procedures of the capital contributor. Indicate whether, over the preceding ten years the capital contributor has been the subject of an investigation or of a professional, administrative, or judicial proceeding of a material nature; State the capital contributors objectives for the acquisition of an equity holding in the institution. Give all relevant information; Indicate whether there is significant business between the capital contributor and the applicant and how these relations are likely to develop in the future; and Indicate the main banking relations of the capital contributors in Cambodia and how long these relations have existed.
(g) (h)
(i)
B- LICENSE APPROVAL AND RELATED FEES

The National Bank of Cambodia shall provide written notification of its decision within three months from the receipt of application including all relevant documents. Where appropriate, the approval shall set out the specific conditions laid down by the National Bank of Cambodia for its entry into force and the timetable for the project. If the project has not been completed upon expiry of the deadline and if no extension has been requested, the approval becomes void. An indefinite license shall be provided by the National Bank of Cambodia to all specialized banks operating in the Kingdom of Cambodia9. A licensed specialized bank shall maintain an amount equal to five (5) percent of its registered capital in a permanent account with the National Bank of Cambodia, and be subject to the following conditions10: A- Deposit in Riel will bear interest at half of the refinancing rate set by the National Bank of Cambodia. The interest payment shall be settled semi annually. B- Deposit in foreign currency will bear interest at three eighths (3/8) SIBOR (Singapore Inter-Bank Offered Rate). The interest payment shall be settled semi-annually. The
9-
National Bank of Cambodia, Prakas No..B7.06-208 Prokor On Admendment to Prakas on licensing of Specialized Banks , September 13,2006 10- National Bank of Cambodia, Prakas No..B7.06-208 Prokor On Admendment to Prakas on licensing of Specialized Banks, September 13,2006
Brothers Investment Group Co., Ltd. Page 34 of 44 www.big.com.kh
National Bank of Cambodia will notify all specialized banks of applicable rate for the relevant period. The National Bank of Cambodia will only reimburse the capital deposit to a licensed Specialized Bank if it voluntarily liquidates and has no deposit liabilities. The institutions shall pay a fee of KHR 500,000 upon submission of the application for a license. The annual license fees shall be paid before 15 of January as follows11: KHR 10 million for the bank headquarters, KHR 8 million for the first to seventh branch of a bank KHR 5 million for the eighth branch upward
For institutions established during year, the license fee shall be calculated on a pro rata basis for the period remaining to years end. In the event of late payment of the license fee, the Institutions concerned shall be fined by paying interest on the overdue payment at the prevailing refinancing interest rate for a period up to thirty days. If they are not in order after this period, their license shall be revoked
C- PRUDENTIAL RULES
Applicants with no operating history must pay up 100 percent of registered capital into an account open with NBC prior to commencement of operations. A licensed specialized bank shall deposit 5 percent of its deposits into its account maintained with the National Bank of Cambodia. This reserve requirement shall be maintained under the conditions set forth in Regulation on reserve requirement. A licensed specialized bank shall observe all the regulatory requirements to which banks are subject, particularly the reporting requirements.
D- OTHER PROVISIONS
The specialized bank shall pay a fee of one percent of share capital for such case: Notifications relating to acquisitions or disposals of shareholdings in the context of Article 23 of the Law on Banking and Financial Institutions Authorization applications relating to acquisitions or disposals of shareholdings in the context of Article 24 of the Law on Banking and Financial Institutions
In the event of the appointment of new managers (namely the two persons responsible for the effective direction of the banks business) the following information must be furnished to the National Bank of Cambodia: A document providing proof of such appointment (board meeting minutes for example), Curriculum vitae and questionnaire appended in Annex II.
All these documents must be furnished at least one month before the person concerned takes up his/her position. Other changes in the legal or financial status of a specialized bank must be submitted to the National Bank of Cambodia for approval. Application materials should be accompanied by a description of the reason for the planned operation and, as applicable, by the following information:
11
- National Bank of Cambodia, Prakas No..B7.04-205 Prokor On license fee for banks and financial institutions
www.big.com.kh Page 35 of 44
- Extension or redefinition of activities: the information referred to in paragraph (k) of Article 5 of Prakas No. B700-05 must be furnished; - Capital reduction: description of terms and conditions, namely legal and accounting arrangement and indication of the new amount of own funds with possible effects on future business and prudential ratios; - Change in legal form: draft amendments to the Articles of Association and information concerning management bodies; - Change in business name: draft amendment to the Article of Association. All these changes must be submitted to the National Bank of Cambodia at least three months before their enforcement. Bank shall pay a fee of KHR 1 million for a change of one page of the Articles of Association.
2.b.
COMMERCIAL BANK
According to PRAKAS No B700-04ON LICENSING OF COMMERCIAL BANK dated on 10 January 2000, Commercial Banks must obtain a license from the National Bank of Cambodia (NBC) before starting business.
A- PROCEDURE FOR SUBMITTING A LICENSE APPLICATION

In addition to the requirement for a specialize bank, application for a license need to indicate:(m) External Audit: Identity of proposed auditors, who must obtain the prior authorization of the NBC. (n) Nature of auditors assignments. Headquarter or parent company control ( for branches or subsidiaries of foreign banks) Description of procedures for parent company control of foreign branches or subsidiaries. Description of supervision of foreign branches or subsidiaries by the competent home country authorities
In addition to the information required by specialized bank, Capital contributors holding 5 percent or more of the capital or the voting rights of institution must provide additional information as follow: (j) Indicate the distribution of share capital of the capital contributor. If need be state the distribution of the share capital of the parent company and of intermediate holding companies (give percentages in terms of shareholdings and voting rights). List the main managers of the capital contributor. (k) Provide the accounts of the capital contributor or its parent company for the last three years and a forecast for the current year (including consolidated information where applicable). If the capital contributor is a financial institution, furnish information on the main prudential ratios.
www.big.com.kh
Each of the two persons expected to be appointed to a managerial position, that is, to be responsible for the effective direction of the banks business, must provide the following information by filling in the curriculum vitae and questionnaire appended in Annex IV. (a) Managers Identity: - Full name, - Date and place of birth, - Nationality, - Personal address (give planned place of residence after taking up the appointment, if different; managers should have their residence close to the main place of business, namely inside Cambodia). (b) Qualifications and experience: - Academic degree as well as date and place where diplomas were awarded, - work experience over the past ten years, including the name, place of business and activities of the employee(s), the type of experience gained and the level of responsibility. (c) Indicate whether, in carrying out your duties, you will act in concert with or in accordance with the instructions of another individual or legal entity other than the applicant. In either case, give all relevant information. Describe the managerial tasks for which you will be directly responsible. Indicate whether you are or in the past ten years have been a significant shareholder (namely holding directly or indirectly at least 10 percent of the share capital or voting rights) of a company other that the applicant. If so, state the name and activities of such company or companies and the amount of your shareholding or interest in same. Indicate, to the best of your knowledge, which of the companies in which you have held or hold a position of responsibility, or in which you have been or are a significant shareholder, have or might soon have significant business relations with the applicant. Indicate whether in Cambodia or abroad you have been the subject of a professional, administrative, or judicial proceeding resulting in a penalty. Give all relevant details, as appropriate. Indicate whether you currently have, or intend to have, an amicable arrangement with creditors or any other judicial or extra judicial arrangement, in Cambodia or abroad, for the purpose of settling debts that you have been unable to honor in accordance with your initial commitments. State whether you are aware of any such proceedings involving companies in which you have held or hold positions of responsibility, or of which you are or have been a significant shareholder. Give all relevant details. Indicate whether you have been the subject of disciplinary or dismissal proceedings by any of your employers. If so, give all relevant details.
(d) (e)
(f)
(g)
(h)
(h)
www.big.com.kh
(i)
Indicate whether you are a capital contributor to the applicant and whether you intend to carry out, either directly or through an intermediary, personal or professional transactions with the applicant. Provide all additional information that would appear likely to inform the National Bank of Cambodia. All the answers to the above-mentioned questions should be submitted through the curriculum vitae and questionnaire appended in Annex IV, together with a letter in compliance with the model letter provided in Annex II.
(j) (j)
B- LICENSE APPROVAL AND RELATED FEES

The National Bank of Cambodia shall provide written notification of its decision within six months from the receipt of application including all relevant documents. Where appropriate, the approval shall set out the specific conditions laid down by the National Bank of Cambodia for its entry into force and the timetable for the project. If the project has not been completed upon expiry of the deadline and if no extension has been requested, the approval becomes void. An indefinite license shall be provided by the National Bank of Cambodia to all commercial banks operating in the Kingdom of Cambodia12. A licensed commercial bank shall maintain an amount equal to ten (10) percent of its registered capital in a permanent account with the National Bank of Cambodia, and be subject to the following conditions: A- An amount of five percent of their registered capital bearing no interest; B- An amount of five percent of their registered capital bearing interest at 75 percent of six month SIBOR. The National Bank of Cambodia will only reimburse the capital deposit to a licensed Commercial Bank if it voluntarily liquidates and has no deposit liabilities. The institutions shall pay a fee of Riel 3.5 Million upon submission of the application for a license. The annual license fees shall be paid before 15 of January as follows13: KHR 70 million for the bank headquarters, KHR 56 million for the first to seventh branch of a bank KHR 20 million for the eighth branch upward KHR 1 million for the branches in districts
For institutions established during year, the license fee shall be calculated on a pro rata basis for the period remaining to years end. In the event of late payment of the license fee, the Institutions concerned shall be fined by paying interest on the overdue payment at the prevailing refinancing interest rate for a period up to thirty days. If they are not in order after this period, their license shall be revoked
12-
National Bank of Cambodia, Prakas No..B7.06-207 Prokor On Admendment to Prakas on licensing of Commercial Banks , September 13,2006 13 - National Bank of Cambodia, Prakas No..B7.04-205 Prokor On license fee for banks and financial institutions
C- OTHER PROVISIONS
The commercial bank shall pay a fee of one percent of share capital for such case: Notifications relating to acquisitions or disposals of shareholdings in the context of Article 23 of the Law on Banking and Financial Institutions Authorization applications relating to acquisitions or disposals of shareholdings in the context of Article 24 of the Law on Banking and Financial Institutions
In the event of the appointment of new managers (namely the two persons responsible for the effective direction of the banks business) the following information must be furnished to the National Bank of Cambodia: - The new manager must send a letter informing the Governor of the National Bank of Cambodia of his appointment as manager and indicating his position; - A document providing proof of such appointment (board meeting minutes for example) - All information as stipulated in the Article 6 of the Prakas (No. B700-04) on the Commercial Bank Licensing. All these documents must be furnished at least one month before the person concerned takes up his/her position. Other changes in the legal or financial status of a commercial bank must be submitted to the National Bank of Cambodia for approval. Application materials should be accompanied by a description of the reason for the planned operation and, as applicable, by the following information: - Extension or redefinition of activities: the information referred to in paragraph (k) of Article 4 of Prakas No. B700-04 must be furnished; - Capital reduction: description of terms and conditions, namely legal and accounting arrangement and indication of the new amount of own funds with possible effects on future business and prudential ratios; - Change in legal form: draft amendments to the Articles of Association and information concerning management bodies; - Change in business name: draft amendment to the Article of Association. All these changes must be submitted to the National Bank of Cambodia at least three months before their enforcement. Bank shall pay a fee of Riel 1 million for a change of one page of the Articles of Association.
www.big.com.kh
Table 11 : The Summarize table for Criterias to obtains license from NBC Key Criteria Minimum Capital(14) Capital Guarantee Reserve Requirement Commercial Bank KHR150 billion (US$36.50 mln) 10% of registered Capital - 8% of deposits & borrowing(LCY) - 16% of deposits & borrowing (FCY) Solvency Ratio/(CAR) Liquidity Radio Application fee Annual License fee At least 15% 50% KHR3.5 M
KHR70M (HQ), KHR56M ( 1st-7th Branch), KHR20M ( 8th branch ~), KHR1M (Branch in District)
Specialized Bank KHR30 billion (US$7.30 mln) 5% of Registered Capital 5% of deposit
Microfinance KHR250 million (US$70,000) 5% of Registered Capital 5% of deposit
At least 15% 50% KHR500,000

KHR10M (HQ), KHR8M ( 1st-7th Branch), KHR5M ( 8th branch ~),
At least 15% 50%
KHR1M (HQ),
Note: Exchange rate: 1US$ = 4110 KHR in September 2008
3. THE SUPERVISORY ROLE OF THE NATIONAL BANK OF CAMBODIA

The National Bank of Cambodia is the Central Bank which supervises the banking system and its related activities such as the money market, the inter-bank settlement system, and financial intermediation. To this end the Central Bank shall: 1. Issue licenses and define the licensing process,
2. Prepare and keep up to date a list of licensed banks which shall be published in the Official Gazette of the Kingdom of Cambodia and in the Bulletin of the National Bank of Cambodia, 3. Be empowered to issue regulations for the implementation of this law which authorizes the Central Bank to determine, in particular the 3.1. Amount of minimum capital and the nature of the assets it is backed with, 3.2. Prudential ratios regarding particularly liquidity, solvency, risk diversification, foreign exchange exposure, and market risk exposure, 3.3. Valuation rules for accounting balances, 3.4. Conditions under which participations can be taken and held in the capital of a covered entity or a financial institution, 3.5. Conditions under which participations can be taken and held in the capital of other banking or financial companies,
14 - National Bank of Cambodia, Prakas No. B7-08.193 ProKor on Capital Requirement and Criteria for Licensing Approval of Banks, Dated on September 19, 2008
3.6. Debts which must be regarded as doubtful, and the provisioning thereof, 3.7. The chart of accounts, the related accounting standards, the rules for the consolidation of accounts, and the rules of the disclosure of accounting statements, 3.8. Conditions applicable to the banking and financial operations that may be carried out in their relations with customers, 3.9. Organization of inter-bank joint services, including the centralization of financial information, risks, and overdue debts, 3.10. Granting of individual, exceptional, and temporary exemptions, 3.11. Requirements and authorization rules concerning modifications in the business name, legal form, capital distribution, management and activities of a covered entity, or of the head office in the case of a branch of a foreign bank, 3.12. Practice of door-to-door selling of banking or financial services, 3.13. After consultation with the covered entities professional association, the rules governing the operation of a deposit guarantee system, 3.14. And, generally speaking, the modalities for enforcing this law in light of the differences concerning the legal form of covered entities, the scope of their network, and the nature of their activities. 4. It publishes all regulations issued by virtue of its authority in the Official Gazette of the Kingdom of Cambodia and in the Bulletin of National Bank of Cambodia,
5. It supervises the banking system through permanent off-site monitoring and periodic onsite examinations of each covered entity; if the need arises, on-site examinations may be extended to a subsidiary of a covered entity or to any other related entities, including shareholders, 6. It organizes or supervises any inter-bank settlement system, 7. 8. It may require that covered entities, public offices, auditors, and any other individual or legal entity disclose information considered as useful for its mission, And it may, in accordance with the conditions defined in Articles 52 to 54 of this law, take disciplinary action.
The supervisory authoritys duty consists of: 1. 2. 3. 4. 5. Licensing covered entities to carry out financial and banking operations in Cambodia, Defining and enforcing prudential rules related to the financial structure and management that covered entities must abide by, Supervising, permanently but after the fact, through both off-site and on-site examinations, the financial position and functioning of covered entities, Imposing disciplinary sanctions against covered entities failing to comply with law and regulations, Referring to the courts if failure to observe laws and regulations undermines the public interest.
www.big.com.kh
CHAPTER IV CONCLUSION
The banking system in Cambodia is two-tier with commercial banks and the central bank. By the end of 2008, commercial banks have increased in number to 25, 22 local banks and three foreign branches. The specialized banks reduced from seven to six, but this was a result of one new entry and two banks upgraded to commercial bank. This is a sign that competition is going to be tough. Banking in Cambodia remains in developing stage and lack of modern services such as deposit through ATM, lack of inter-bank market so that commercial banks can borrow from each other at a low interest rate. However, the existing banks have been competing to provide new financial services from ATM to Credit Card, from financial consultancy to tax services. Both credits and deposits have grown rapidly, demonstrating an increase in public confidence in the sector. Banks' profitability should continue to be strong, if not bullish, as the interest rate spread remains high. Looking at the earnings trend, the return on equity in 2001 was only 1.7% but now it is 16.3% whereas the return on assets was 0.5% and now it is 2.8%. So it is quite profitable to have a banking business in Cambodia. In terms of licensing, banks could be incorporated as a public company, a local company in Cambodia or as a branch of a foreign bank. A foreign bank may open information, liaison or representative offices and local and foreign banks are treated equally. The minimum capital requirement to become such a legal entity is KHR150 billion (US$37million) for commercial banks, KHR 30 billion (US$ 7.5 million) for specialized banks. In addition, the candidate bank must have adequate human resources, the individuals must be clearly identified, and management must have at least two to three years experience, and the business plan must look forward. It also requires the bank applicant to have a credit policy, accounting system and a risk management system. Processing the bank license will take six months. Banks are also required to maintain a statutory deposit of 10% of its registered capital with the National Bank. Bank supervision regulations have been relaxed to improve the banking sector as it grows bigger. The license was originally for three years but now it is indefinite. The solvency ratio was originally 20% but now it is only 15%. The liquidity ratio was 100%, but now it is only 50%. Total exposure is limited to 300% of net worth. Related parties are limited to 10% of net worth. The lending per capita remains low and poised to grow as witnessed in the neighboring countries. The US$114 per capita of the private-sector lending was by the end of 2007 comparable to Thailand in the early 1970s, Indonesia and the Philippines in the mid- to late-1980s and Vietnam in 2000. The National Bank of Cambodia has been playing an excellent role in supervising, monitoring and preventing systemic risk in the sector. The monetary policy implementation has focused on managing the excess liquidity and the over-involvement of banks in the real estate sector which could have adverse consequences. Among measures undertaken were increasing the statutory
reserve requirement from 8% to 16%, increasing the capital requirement of the banks, and the limit in real-estate lending. For a strong and resilient banking and financial system, banks need to tackle significant issues like improvements in profitability, efficiency and technology, while achieving economies of scale through consolidation and exploring available cost-effective solutions. These are some of the issues that need to be addressed if banks are to succeed, not just survive, in the changing environment.
4
REFERENCES:
1- National Bank of Cambodia, Law on Banking and Financial Institute, November 19, 1999 2- National Bank of Cambodia, Banking Supervision Department, Annual Report for 2006 3- National Bank of Cambodia, Banking Supervision Department, Annual Report for 2007 4- National Bank of Cambodia, Banking Supervision Department, Semi-annual Report for the first quarter of 2008 5- National Bank of Cambodia, Banking Supervision Department, Annual Report for 2008 6- National Bank of Cambodia, Quarterly Bulletin, No 24 2nd Quarter of 2008 7- National Bank of Cambodia, Quarterly Bulletin, No 25 3rd Quarter of 2008 8- National Bank of Cambodia, Quarterly Bulletin, No 26 4th Quarter of 2008 9- National Bank of Cambodia, Quarterly Bulletin, No 27 1st Quarter of 2009 10- ACLEDA Bank, presented at Leopard Cambodia Investment Forum, Raffles Le Royal Hotel 18-19, September 2008 11- ANZ Royal Bank, presented at Leopard Cambodia Investment Forum, Raffles Le Royal Hotel 18-19, September 2008 12- National Bank of Cambodia, Supervision Department, Report 30-September 2008 13- National Bank of Cambodia, Prakas No. B7.00-04/PrK on the Licensing of Commercial Banks, Jan 2000 14- National Bank of Cambodia, Prakas No. B7.00-05/PrK on the Licensing of Rural Credit Specialized Banks, Jan 2000 15- National Bank of Cambodia, Prakas No. B7.00-06/PrK on the Licensing of Micro-financing Institutions, Jan 2000 16- National Bank of Cambodia, Prakas No. B7.00-39/PrK on Bank's Minimum Capital, Feb 2000 17- National Bank of Cambodia, Prakas No. B7.00-46/PrK on Banks' Solvency Ratio, Feb 2000 18- National Bank of Cambodia, Prakas No. B7.00-47/PrK on the calculation of bank's net worth, Feb 2000
www.big.com.kh
19- National Bank of Cambodia, Prakas No. B7.00-51/PrK on the classification of and provision for bad and doubtful debts, including interest in suspense, Feb 2000 20- National Bank of Cambodia, Prakas No. B7.00-52/PrK on controlling bank's large exposures, Feb 2000 21- National Bank of Cambodia, Prakas No. B7.01-136/PrK on Bank's Capital Guarantee, Oct 2001 22- National Bank of Cambodia, Prakas No. B7.01-186/PrK on Fixed Assets of Banks, Nov 2001 23- National Bank of Cambodia, Prakas No. B7.02-145/PrK on amendment of Prakas No B7.0051 on the classification and provision for bad and doubtful debts including interest in suspense, June 2002 24- National Bank of Cambodia, Prakas No. B7.02-187/PrK on amendment of Prakas on relating to liquidity for Banks and Financial Institutions, Sep 2002 25- National Bank of Cambodia, Prakas No. B7.02-206/PrK on standardized procedure for Identification of Money-laundering at the Banking and Financial Institutions, Oct 2002 26- National Bank of Cambodia, Prakas No. B7.02-218/PrK on Adoption and Implementation of Chart of Accounts for Banking and Financial Institutions, Dec 2002 27- National Bank of Cambodia, Prakas No. B7.04-205/PrK on License fees for Banks and Financial Institutions, Dec 2004 28- National Bank of Cambodia, Prakas No. B7.06-207/PrK on Amendment to Prakas on Licensing of Commercial Banks, Sep 2006 29- National Bank of Cambodia, Prakas No. B7.06-207/PrK on Amendment to Prakas on Licensing of Specialized Banks, Sep 2006 30- National Bank of Cambodia, Prakas No. B7.06-2011/PrK on Reporting date for Commercials Banks and Specialized Banks , Sep 2006 31- National Bank of Cambodia, Prakas No. B7.09-012/PrK on License fees for Banks and Financial Institutions, Jan 2009 32- Ministry of Planning, NIS General Population Census of Cambodia 2008, August 2008 33- CLSA U, Blue Books, Experts Views for expert investors, September 2008 34- Economics today magazine, Volume 2, Number 28, December 1-15, 2008
Webpage Reference:
1- History of National Bank of Cambodia, National Bank of Cambodia "http://www.nbc.org.kh/khmer/history-nbckh.asp " 2- Cambodian Public Bank, Service "http://www.campubank.com.kh/services.html" 3- ACLEDA Bank Plc, http://www.acledabank.com.kh/EN/PS_productsUpdates.asp" 4- Canadia Bank Plc, " http://www.canadiabank.com/" 5- ANZ Royal Bank, " http://www.canadiabank.com/"
www.big.com.kh

Banking Sector in Cambodia

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Banking Sector in Cambodia

Uploaded by

Copyright:

Available Formats

INFORMATIVE REPORT

BANKING SECTOR IN CAMBODIA

THE SUPERVISORY ROLE OF THE NATIONAL BANK OF CAMBODIA ..................................................................... 40

Brothers Investment Group Co., Ltd.

35.00 4,793.00 -6,243.00 -1,450.00 -795.00 4,120.00

3,693.00 -4,749.00 -1,057.00

1.c. INTERNATIONAL RELATIONS A- Relations with Neighbours

Brothers Investment Group Co., Ltd.

B- Relations with the International Community

Rubber and products, 156.8

Beverages and tobacco, 44.3 Garment , 2957.6

A- External Trade and Capital Movement

Table 3 Cambodia Balance of Payment (million of US$) from DQ06-MQ08n

Source: National Bank of Cambodia

B- International Investment Position

Source: National Bank of Cambodia

Brothers Investment Group Co., Ltd.

2. THE BANKING HISTORY IN CAMBODIA

Brothers Investment Group Co., Ltd.

1993 1991 1991 1994 1996 2002

Brothers Investment Group Co., Ltd.

Name of Banks Closed in 2000-20025

3. CURRENT BANKING SITUATION IN CAMBODIA

$954 $1,400 $2,250 $3,068 $582 $893 $1,592 $2,539

Source: ANZ Royal Bank, Banking sector in Cambodia, 2008

- National Bank of Cambodia, Annual Report 2007

Brothers Investment Group Co., Ltd.

Table 6: Banks in operation as of November 2008

Banks Commercial Bank

ACLEDA Bank Plc.

Leading Market Share

Banking sector in Cambodia, ANZ Royal Bank, 2008

Brothers Investment Group Co., Ltd.

CHAPTER II BANKING MARKET POTENTIAL AND CHALLENGE

Brothers Investment Group Co., Ltd.

Professional and Private Individual, 1.02

Whole Sale and Retail, 70.57

Building and Construction, 87.29

1.b. ACLEDA BANK

Brothers Investment Group Co., Ltd.

Overdraft Facility for Depositors

Revolving Credit Line

Agriculture, 35.43 Manufacturing, 14.16

Service, 80.57 Commerce, 184.89

Source: ACLEDA's Annual Report with National Bank of Cambodia, 2007

Brothers Investment Group Co., Ltd.

1.c. CAMBODIAN PUBLIC BANK

Construction, 53.1 Real Estate, 27.61

Agriculture, 16.53 Im port and Export, 5.01 Others, 27.21

Consum er Item s, 39.27

Whole Sale and Retail, 89.70 Service, 80.12

Brothers Investment Group Co., Ltd.

1.d. ANZ ROYAL

ANZ Royal Bank Premier Account; or

Foreign currency account

Loan Approval Fee

(comprising Soybeans, Soy Meal & Soy oil), Sugar, Wheat.

Food Industries, 2.5 Construction, 5.03 Real Estate, 9.37

Import and Export, 2.38

Others, 34.4 Consumer Items, 15.68

Whole Sale and Retail, 26.59

Brothers Investment Group Co., Ltd.

2. LOAN AND DEPOSIT IN BANKING