It may be hard to believe, but Cambodia now has 29 separate banks.
The most recent to beat a path to Phnom Penh were the Bank of India and South Korea’s Kookmin Bank, which opened their first branches in the capital last month. Next week, the total will increase to 30 with the official inauguration of Vietnam’s SacomBank branch on Norodom Boulevard.
But the increasing numbers of banks in Cambodia tend to have experts divided on one fundamental issue: Will more banks lead to better services and wider access to financing, or merely saturate the sector and pile more work on top of the National Bank of Cambodia? The big fear is that with so many banks, the NBC will be overloaded with requirements to introduce new regulations and reforms, and a saturated banking sector will ex-
ceed the country’s demand for their services, which could lead to closures.
For John Nelmes, Cambodia’s resident representative for the International Monetary Fund, the increased competition within the banking sector will “squeeze banks’ profits, in an environment where business is already challenging because of the downturn in the economy.”
Mr Nelmes added that any benefits to the Cambodian economy would not be made through a burgeoning number of banks in the country, but rather through insuring their “compliance with prudential regulations.”
“This puts a high premium on very close supervision of banks’ operations and their financial health by the National Bank of Cambodia,” he wrote in an email.
Steven Higgins, CEO of ANZ Royal bank, believes that the sector is already “overcrowded.”
“It is not a good thing,” he said in a recent interview, explaining that despite the influx of banks, competition in the sector had not greatly increased, which means that a greater number of companies are vying for the same customers.
“When you look at the top 4 or 5 banks in the country their market share hasn’t really moved,” Mr Higgins said, adding that competition would be greater if there were just a handful of banks vigorously competing against each other.
In Australia – whose economy dwarfs that of Cambodia’s – there are only 6 commercial banks. Even Britain, where the value of foreign exchange business passing through London reaches $1 trillion on a daily basis, there are only 6 independent British banks in operation.
In a February report regarding Cambodia’s growth potential released by the World Bank, analysis showed that “the most pressing priorities is for Cambodia to address financial sector risks by tightening bank entry criteria and by renewing efforts to monitor non performing loans.”
The report also advised the governors at the central bank to improve tests for new bank entrants to the country as well as the setting of a baseline performance through a Financial Center Assessment Program.
Following the report, the National Bank of Cambodia raised the capital requirements to $36.5 million for commercial banks that did not have a major shareholder.
According to Mr Higgins, the new minimum requirements, which come into force in 2010, could push some banks either to leave the country or merge with bigger banks.
Lim Loong Seng, chief operating officer at the Malaysia-owned OSK Indochina Bank, which opened in February, said that his bank already has over 1,000 account holders.
Mr Loong Seng said that the growing confidence in banks was proof that the NBC’s policy to encourage as many banks as possible into the country was “going in the right direction.”
However, the massive gulf in account holders between new arrivals like OSK Indochina and major players like ANZ Royal, which has over 80,000 customers, just shows how hard it is for new entrants to penetrate the market in a noticeable way.
NBC Director General Tal Nay Im said the abundance of banks is not an issue, but how they are managed.
“The problem is not the number of banks, but whether or not we regulate and supervise them efficiently,” she said, adding that sanctions and penalties were employed if banks did not follow the guidelines laid out by the NBC.
“Part of our regulations is for banks to analyze the market here before they start lending and find out which sectors they will get profit from,” she said.
“When they open today, they cannot provide loans tomorrow,” she added.
Banks can help develop the economy as long as certain safeguards are in place, said Tioulong Saumura, former deputy governor of the National Bank of Cambodia and current Member of Parliament for the Sam Rainsy Party.
The central bank must supervise banks in preventing money laundering and a banking culture that makes speculative transactions, Mr Saumura said, adding that the last couple of years had seen huge amounts of speculation on the price of land in Cambodia.
Although the dramatic rise in foreign banks coming to Cambodia has encouraged the adoption of international standards and attracted more experienced institutions to establish themselves here, Ms Saumura said she was still an advocate of progressing with caution.
“These banks are bringing in capital from abroad. Thus the Cambodian economy could become more vulnerable,” she said, referring to the chain of events that occurred last year when write-downs from banks in the US spread rapidly to banks in Europe and later in Asia.
But for In Channy, CEO of Acleda Bank, however, more banks bring heightened confidence, which will bring about a rise in customer services and usher in a more attractive investment climate in Cambodia.
“I welcome new banks like Kookmin and Sacombank. They bring expertise to the country,” he said, adding that more banks means a more diverse range of services, from home loans, to more complex investment plans, including stock market opportunities in the future.
“The arrival of the stock market will give investors even more choice leading to a rise in capital,” he added.
