Legislation expected to be passed next week would establish stricter regulations on commercial banks and include periodic examinations of their operations, the National Bank’s governor told National Assembly members on Wednesday.
“The banking law is important to better manage the commercial banking system and make it comply with international standards,” said Chea Chanto, Cambodia’s National Bank governor.
Five of the 23 chapters in the proposed law have been passed; the rest are expected to be approved next week, officials said.
Chea Chanto said the proposed legislation will increase confidence among customers to deposit their money in banks.
Under the proposed law, licenses given to existing commercial banks will be reviewed to determine if the establishments are operating properly.
The review process is aimed at finding out “which bank is good or bad, and whether they function or not,” Chea Chanto said.
Economic experts have said Cambodia’s largely unregulated banking sector makes the country vulnerable to money laundering and could weaken foreign investor confidence. Strict regulations could attract legitimate investment and develop a strong market economy, they said.
One Western banker said the proposed law is a step in the right direction, but said he would make his final judgment later.
“It depends very much on how the law is enforced and whether it can be relied on,” he said.
Government spokesman Khieu Kanharith acknowledged that money laundering at banks is a problem. “I agree there are some bad guys who exploit loopholes,” he said. “That’s why we need regulation.”
In a heated debate, National Assembly members complained that many banks in Cambodia cheat their customers by closing down after receiving deposits.
Sun Kim Hun, a Sam Rainsy Party member, said customers tend to lose money when there is a financial crisis. He cited Cambodia Farmers Bank, which experienced financial woes triggered by the Asian economic crisis and told depositors they could not withdraw cash.
The Farmers Bank reportedly owes $4 million to customers, but Sum Nipha, deputy governor of the National Bank, declined to confirm the amount. The Farmers Bank has not yet told the National Bank whether it will close.
National Assembly member Nan Sy of the Funcinpec Party was one of more than a dozen lawmakers who demanded that the National Bank require commercial banks to deposit more money that can be used to insure customer deposits. Commercial banks have to deposit 10 percent of their capital and 8 percent of depositors’ funds as insurance.
But lawmakers said that is not enough to cover losses. National Assembly Sok San of Funcinpec partly blamed the central bank, saying its supervision of commercial banks was weak.
“The National Bank has to create confidence for customers so even if a commercial bank goes bankrupt, the customers’ money is still guaranteed by the National Bank,” Nan Sy said.
But Chea Chanto said the National Bank isn’t responsible for all the problems related to commercial banks.
“The state‘s responsibility is limited as mandated in the law,” he said. “This is a free market. We can’t control the banks.”