Last week, in a moment of heightened tension following the fighting near Preah Vihear temple, ANZ Royal bank officials made a special trip to the National Bank of Cambodia to get more cash.
ANZ Royal CEO Stephen Higgins would not disclose the amount, but he said they wanted to be “prepared for anything” should nervous customers start lining up, demanding to withdraw their money amid the reports of fighting on the border.
As it happened, nothing out of the ordinary occurred, and ANZ Royal wound up taking the surplus cash back to the NBC, Higgins said.
Still, these are relatively uncertain times amid a global financial crisis and troops deployed on the Thai border.
While Cambodia has until now remained relatively isolated from the global financial turmoil—mainly because of the fact that Cambodian banks don’t make the kinds of high-risk loans that got lenders in the US and elsewhere in trouble—the question remains: Just how safe are Cambodian banks?
In response, local bank officials have highlighted numerous safeguards in place to ensure the safety of depositors’ money and the sector in general.
In Cambodia, there is no central insurance body to guarantee customers’ deposits, like there are in other countries, said Finance Ministry Secretary-General Hang Chuon Naron. But even countries with central insurance bodies don’t insure 100 percent of deposits, he said.
One thing that safeguards banks in Cambodia is that they are only allowed to give out loans worth 50 percent of the value of the collateral offsetting the loan.
“It produces access to credit, but ensures the safety of the loan,” Hang Chuon Naron said.
Reserve requirements are another safeguard.
In Cambodia, 16 percent of a bank’s total deposits are required to be in the national reserve, which means that money is safe and unavailable to be loaned out.
Another key safeguard is the capital adequacy ratio, which reflects how much capital a bank has as a percentage of its risks, such as outstanding loans.
Most international banks function at a CAR of between 8 and 10 percent, Higgins said, but in Cambodia the CAR requirement is higher, at 15 percent.
“Capital levels are twice what they are internationally,” Higgins said. “Which is very, very strong.”
Hang Chuon Naron said that in 2007, banks averaged a CAR well above 26 percent. Higgins said Monday that ANZ Royal operates at more than 20 percent CAR.
Thus, for instance, a bank operating at 20 percent CAR could suffer losses of 20 percent without there being any impact on depositors.
In the unlikely event that a bank goes under, Hang Chuon Naron said, the NBC is required by law to intervene. They would assess the situation and decide how to handle it, he said.
“The central bank would step in in order to secure the system and depositors’ money,” he said.
However, National Bank of Cambodia Director-General Tal Nay Im said that if a bank were to close, the primary responsibility to depositors lies with the individual bank.
“If they close, it would be up to the banks to collect back all the credit and pay customers,” she said, adding that the deposit at the NBC would be used to pay back customers as well.
Tal Nai Im said that banks can accommodate large withdrawals.
“[Banks] have given out loans, but they also keep a balance for withdrawals,” she said.
Acleda CEO In Channy said that his bank has $500 million in deposits and only $470 million in loans, and that any amount of customers who wanted to withdraw from their accounts would catered to.
“If they want to withdraw, no problem,” he said, adding that during last week’s border tensions the daily deposits into Acleda’s branches nationwide was between $3 and $5 million-far more than their usual daily average of between $1 and $2 million.
In Channy said he believed the increase in deposits was due to people thinking their money was safer in a bank.
Higgins said that ANZ Royal has about $400 million in deposits and $200 million in loans. In general, he said, ANZ Royal carries a lot of liquid assets, which means that they have cash on hand should customers request it.
In general, experts stressed the benefit of the fact that the Cambodian banking system is still emerging and is therefore relatively isolated from global linkages and high-risk endeavors like the sub-prime loans that pulled the US economy under.
“The crisis is their issue because they leant money to people to buy houses in 2001, 2002 and 2003, even to people who didn’t have jobs,” Tal Nai Im said.
“For Cambodia, we are not like them…. Most [home] buyers have their own money. In the US, no one could afford to have all the money to buy houses. They just bought on credit for 15 years,” she said, adding that the NBC now limits how much banks can lend in real estate.
“The National Bank always warns not to give loans for real estate. It is risky,” she said. “We have set the limit [for bank’s] to not lend more than 15 percent” of their total lending portfolio to real estate loans.
Chan Sophal, president of the Cambodian Economic Association, admitted recently that banking in Cambodia does come with some risks, but that it was very unlikely that a bank in Cambodia would go under.
The market here is primarily locally based and not interlinked with the global economy, he said. Banks that lend money to someone starting a hotel for instance, need only rely on the tourism sector continuing to do well in Cambodia.
“There is concern over real estate, especially in Phnom Penh and probably Siem Reap too because there seems to be over-saturation. Prices are already high, and the resources are spread too thin in that sector. There are so many projects which may be greater than the effective demand,” he said.
“If banks over-lended in that sector, they may have problems. But the government was quick to set the ceiling at 15 percent,” he said, which should be enough to safeguard any bank.
