Foreign Trade Bank Privatization Plans Lauded by Experts

Economists and financial ex­perts are commending the government for its plans to privatize the Foreign Trade Bank, an­noun­ced by Foreign Affairs Minister Hor Nam Hong last week in Sing­apore.​​​

The move, expected to be completed by the end of 2001, would create a more efficient and effective commercial bank and lead to a more competitive banking environment in which all commercial banks are on equal footing, experts said this week.

“In this state-owned bank, there are too many employees, things move very slowly—customers are always complaining,” Kao Kim Hourn, executive director of the Cambodian Institute for Cooperation and Peace, said Wednesday.

Once in the private sector, the bank’s payroll almost certainly would be trimmed and the employees who remain likely would receive training, he said.

“It is a demonstration of Cam­bodia’s commitment to a free-market economy,” Kao Kim Hourn said.

A government economist in Phnom Penh added that the Foreign Trade Bank would likely be run more efficiently after the privatization because of the focus on profits in the private sector.

“In general, the theory goes that state entities or institutions tend to work more slowly, their mindset is not as much on profit [as in the private sector],” he said.

The economist explained that the International Monetary Fund, the World Bank and others have been pressuring Cambodia’s government for years to privatize the Foreign Trade Bank.

Privatization would better position Cambodia’s banking sector as a whole to compete globally, as it would be more similar to the banking environment in the Western world, the economist said. “We need to compete within and outside the region, and a state-owned institution might not fit in that context,” he explained.

While considered a separate entity from Cambodia’s central bank, the National Bank of Cam­bodia, the Foreign Trade Bank is majority-owned by the government and closely affiliated with the National Bank.

Separating the two will enable the National Bank to take on a true advisory and regulatory role, the economist said, explaining why the pressure has been on.

“If the National Bank is to play the role of regulatory body, then there would be a little bias be­cause the Foreign Trade Bank belongs to the National Bank,” he said.

The economist pointed out that he has not seen any unfairness in the treatment or regulation of the Foreign Trade Bank, but he said there is potential for such irregularities.

“In the minds of the people who want to see the National Bank as the supervisor or regulator, they want to see the Foreign Trade Bank [privatized],” he said.

Craig Martin, executive director of International Management Investment Consultants in Phnom Penh, said Monday that the privatization of the Foreign Trade Bank would bring more clarity to the banking sector in Cam­bodia.

“It’s a bit difficult for a mother to regulate a child,” Martin said, underscoring that separating the Foreign Trade Bank from the central bank would remove any potential for regulatory unfairness.

As with any privatization, the full or partial sale of the Foreign Trade Bank would generate income for the government, experts pointed out.

“That’s money straight to the treasury,” Martin noted.

From the government standpoint, however, there are drawbacks. For one, it loses control. And if an entity is privatized and restructured, weaknesses, corruption and other problems are exposed, Martin said.

Tal Nay Im, general director of the National Bank of Cambodia, said Tuesday that the Foreign Trade Bank is being restructured to position the institution to be sold. She declined to speculate on a potential sale price.

“We will update the computer system, make it faster and more accurate,” she said, declining to provide more details of the restructuring.

Ernst & Young performed an audit of the Foreign Trade Bank earlier this year, but Tal Nay Im declined to discuss the results. “I cannot tell you what the audit showed,” she said.

An official at Ernst & Young in Phnom Penh also declined to comment Tuesday, except to say the audit was performed at the beginning of the year and the results were turned over two months ago.

Speaking at a meeting last week organized by the Singapore Confederation of Industries, Hor Nam Hong, a close associate of Prime Minister Hun Sen, said a new commercial bank draft law would be debated by the National Assembly this year.

Hor Nam Hong also said in­spection of banks by internationally recognized audit firms would be stepped up. This is apparently an initiative to combat the presence of unscrupulous banks, which international police agencies have said operate regularly in Cambodia to launder money.

Hor Nam Hong has not returned from Singapore—he is attending the Asean foreign minister meeting and the Asean Regional Forum—and could not be reached for comment.

Officials at the World Bank, Asian Develop­ment Bank, Min­istry of Finance and Ministry of Foreign Affairs declined to comment on the initiatives.

, saying they were unfamiliar with the government plans.

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