As a Dec 31 deadline approaches for commercial banks to comply with a new banking law, the Foreign Trade Bank of Cambodia will remain a government institution at least through 2002, banking officials said this week.
By the end of this year, all commercial banks will have had to meet a minimum capital requirement of $13 million or lose their licenses. The International Monetary Fund had urged the Foreign Trade Bank to be privatized as well. But the national bank remains the sole shareholder, and a plan to recapitalize the bank through the issuance of government bonds has stalled, officials said.
“I have told the National Bank Governor, Chea Chanto, not to [issue bonds]. We do not want to borrow the money yet,” Minister of Economy and Finance Keat Chhon said.
Critics of the policy say it is unfair for commercial banks to face a deadline for an increase in registered capital, while the Foreign Trade Bank gets a break.
But government officials maintain the bank is not strong enough to compete in the private sector.
“At the moment, we need to strengthen operation…to be competitive in the banking market,” National Bank Secretary-General Sum Samnisith said. Meanwhile, the bank will search for private investors, but not until the end of 2002, he said.
For now, the National Bank fronted the recapitalization of the Foreign Trade Bank, he said.
After that, the Ministry of Finance will have to make a decision on the best way to privatize the bank.
However, one government economist, speaking on condition of anonymity, said privatization of the bank was a relatively easy task, but the Finance Ministry and the National Bank were worried about “small, hair-splitting” details.
For example, the issuing of $13 million in long-term government bonds has been delayed by concerns that bond certificates could be counterfeit, the economist said. In fact, he said, certificates are harder to fabricate than riel notes.
“If they can print money, they should be able to print any coupon of high quality,” he said.
A more accurate view of the delay would put more responsibility on a Ministry of Finance hesitant to turn over the economy to free market forces, he said.
Many Finance Ministry policies “are still with the planned economy, state control. Old school,” the economist said. “The bond is new school.”
Were the government to give up control of the state-run Foreign Trade Bank, it would leave the National Bank as a regulatory agency. All government funds—for projects, payrolls or pensions—would eventually have to be handled through a commercial bank.
Other difficulties for privatization include a public still distrustful of banks here, and a black market that offers better interest rates than the banks, he said.
Ultimately, however, he said the privatization of the Foreign Trade Bank will be up to the Ministry of Finance, if it has the will.
“The Ministry of Finance either doesn’t want—or doesn’t know how—to do it,” he said.
