5 Commercial Banks To Close, Law May Shut Down More

At least five commercial banks soon will be closed as they failed to apply for a new banking li­cense with the Cambodia Nation­al Bank, and additional banks might be shut down later, officials and experts said this week.

Tal Nai Im, director general of the national bank, said Wednes­day that only 28 commercial banks of 33 operating in Cambo­dia applied for a new license before the May 31 deadline set by the new banking law, adopted late last year.

“We will close any banks which didn’t apply for the new license,” she said.

But officials refused to disclose when and which banks will be shut down. They did say, though, the national bank is now assessing all the application documents submitted by each bank and will issue a new license by the end of this year.

“The final decision will be made step by step….We’re still in the process of evaluation,” Lonh Hay, deputy director general of the national bank, said Thursday.

The new banking law, passed by the National Assembly in November, requires all commercial banks to be relicensed and registered with the national bank. To be licensed under the new law, each commercial bank should have minimum 50 billion riel, or $13 million, in capital and deposit 10 percent of the capital into the national bank, according to the national bank’s officials.

And experts predict more banks will be liquidated when the government strictly enforces the minimum capital requirement.

“Not all of the 28 banks have met the minimum capital requirement,” said Herve LeClerc, an expert from the International Monetary Fund working with the national bank.

Economic observer Paul Freer of the International Management  and Investment Consultants Ltd also said most of the banks operating have barely $1.5 million to $5 million in capital and only a few banks are able to meet the minimum requirement.

“The new regulations are going to reduce the great amount of banks operating in Cambodia,” Freer predicted. It is possible that smaller banks might merge together to create a bigger bank to survive, but it wouldn’t likely happen, he said.

Relicensing of banks is one of the top priorities of banking reform imposed by the international donor community.

“The idea behind this is to reassess overall structure of the banking system in Cambodia,” LeClerc said. “The strong capital base for commercial banks can help develop the sound banking system, because customers [in Cambodia] are not as reliable as those in developed countries.”

He said in the past many investors came and opened banks without much experience in the banking business or knowledge of it. The law would be able to create more reliable banks, he expects.

Sok Hach, macro economist with the Cambodia Development Resource Institute, said strengthening the country’s banking system could mobilize domestic savings, encouraging people to deposit their money into commercial banks, which in turn could loan money for investors.

 

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