Bringing the country a step further into the international financial system, Cambodia’s banks received their first-ever risk assessment from an international ratings agency Thursday.
Standard & Poor’s placed Cambodia’s banks in the weakest of 10 categories, alongside banks in countries such as Bolivia, Jamaica, Ukraine and Venezuela. In 2007, S&P lifted Vietnam’s banks from Group Ten to Nine and China’s from Group Seven to Six.
S&P risk profiles are used to establish the creditworthiness of a country’s banks and may help set lending terms with international banks.
Cambodia’s bank rating follows S&P’s issuance in April of the country’s first sovereign debt rating.
Ivan Tan, a credit analyst for S&P in Singapore, said Thursday that Cambodia’s banking sector would likely benefit from a robust economy but the industry remained risky due to poor transparency and law enforcement.
“While laws on secured transactions have recently been passed, there is a lack of track record on the effectiveness of the legal framework and commercial laws when it comes to enforcement,” Tan wrote in an e-mail.
Cambodia National Bank Director-General Tal Nay Im said the S&P assessment was itself a positive development despite some of its negative findings.
Regulation of the country’s growing banking sector is still developing but is nevertheless well enforced, she said. The government demands strict accounting from all banks on solvency risks and capital adequacy but the rules governing banks have a ways yet to go, she conceded.
“We are in the early stages of our development. The government is now making efforts to fill these gaps in the legal framework,” Tal Nay Im said.
Experts said Thursday that the banking industry in Cambodia as a whole is operating at a surplus and therefore borrows little from foreign lenders, meaning the new rating may have few immediate consequences.
Also Thursday, S&P issued a credit rating of B-plus/B for Acleda Bank, giving the company a “stable outlook” and citing its profitability and high quality assets.
“[T]hese strengths are partially offset by the underdeveloped operating environment and poor legal infrastructure in Cambodia,” the agency said in a statement.
Acleda President In Channy said that Standard & Poor’s could not issue a credit rating higher than the national sovereign debt rating.
Due to Cambodia’s high debt burden and narrow economic base, Standard & Poor’s said in April it was assigning a B-plus rating to Cambodian bonds, putting them below “investment grade.”
In Channy said a favorable rating could help Acleda Bank secure cheaper credit on international markets but that the bank borrowed little internationally.
With total assets of $472 million at the end of 2007, Acleda Bank recorded deposits of $350 million and a $315 million loan portfolio, he said. The company had borrowed only $27 million in foreign funds last year, he added.
Industry-wide, the borrowing phenomenon was even more pronounced as Cambodian banks collected $2.2 billion in payments but made only $1.4 billion in loans in 2007, In Channy said.
“If you look into the whole sector, you can see a whole surplus,” he said.
Mey Vann, director of the Finance Ministry’s financial industry department, said economic growth, increased foreign investment and clearer banking regulations had increased the public’s trust in the banking system.
The public’s tenuous faith in banks took a serious blow in 2000 when a re-licensing procedure forced the closure and liquidation of 12 banks.
“The banking sector is good but this depends on how each institution and bank operator practices based on a fair competition strategy,” Mey Vann said.
CPP lawmaker Cheam Yeap, chairman of the National Assembly’s banking and finance commission, said the change in the public’s banking behavior was obvious.
“We see that people no longer keep cash at home anymore. Their secure savings place is the bank,” he said.
The government is also establishing regional offices of the National Bank to facilitate the payment of civil servant salaries, Cheam Yeap added.
“I think in the long run our banking system will be similar to those of other developed countries,” Cheam Yeap said.
