As a global and domestic economic slowdown persists, private banks will continue to find it difficult to do business in Cambodia, local economists and banking officials are warning.
Hotels, retail outfits and other businesses have not made sufficient profits in the last year to support the country’s nearly 30 commercial banks, said Sok Hach, an economist at the Cambodia Development Resource Institute.
This could bring a market correction for Cambodia’s banking industry, he said. The country has between 10 and 20 large hotels and some 200 garment factories, which is really “only enough [industry] for one or two banks, ” he said.
Last year, in the wake of a 1999 banking law that increased capital requirements, 11 foreign banks closed. The new law stipulates that each commercial bank must have at least $13 million in deposits to remain open.
This year, three other foreign banks—First Overseas Bank, Standard Chartered Bank and Credit Agricole Indosuez—have shut down their Cambodia offices for various reasons.
Credit Agricole Indosuez and the Foreign Trade Bank of Cambodia signed a memorandum of understanding last month to study transferring Credit Agricole Indosuez’s activities to the Foreign Trade Bank.
“Those banks closed because they were not profitable,” Sok Hach said. He warned that foreign banks cannot help the Cambodian economy because they do not lend money to poor or moderately poor Cambodians and generally invest two-thirds of their deposits outside the country.
“Foreign commercial banks get deposits from Cambodians but lend money outside the country,” he argued. “Micro-credit institutions get deposits from Cambodia and lend money back to Cambodians with an interest rate.”
People were too optimistic in the early 1990s, Sok Hach said. They expected a boom in tourism and high rates of economic growth—hopes that never materialized and were stricken in 1997 when a region-wide economic crisis hit at the same time Funcinpec and the CPP took up arms against each other at home.
Another economic analyst, who asked not to be named, said many banks around the world are pulling out of unprofitable overseas branches in efforts to recoup losses from other sectors.
He pointed out that bank interest rates in Japan, the US and European banks have been shrinking. He attributes this to a slow economic recovery and the fact that consumers are hesitant to spend money and take out loans.
He also pointed to conditions in Cambodia that are not conducive to profitability for banks, including a lack of banking laws, low public confidence and high interest rates propagated by the National Bank of Cambodia.
He likened interest rates, which can reach as high as 60 percent, to practices of a “business mafia.”
Tal Nai Im, director general of the National Bank of Cambodia said the bank closures are the fault of the private banks, not the government or the National Bank of Cambodia.
First Overseas Bank closed because it did not follow the NBC’s policy, she said. And Standard Chartered Bank and Credit Agricole Indosuez closed as a result of decisions that came from their overseas executives, she said.
“There is not way to keep them if they want to close,” she said. “The NBC has practiced free market policies.”