The National Bank of Cambodia has closed 11 commercial banks that failed to comply with the minimum capital requirement set by the new banking law, according to a legal announcement by the national bank.
Only four commercial banks out of the 30 operating in the country have received a new banking license, a senior official of the central bank said Sunday. Fifteen other banks are temporarily allowed to continue doing business, but are required to increase their capital up to at least $13 million by the end of 2001.
The 11 banks forced to close were unable to meet the $13 million minimum capital requirement in the new banking law, which passed at the National Assembly one year ago, the official said. The previous minimum capital requirement was $5 million.
The decision was made after evaluating the financial situation of banks, shareholders of the banks, legality of management and business planning.
“With this decision, we’ve solved the main problem in our banking sector,” the official said. “What we are doing is to strengthen our banking sector by selecting only strong banks.”
He noted that a sound banking sector is an essential requirement for Cambodia’s economic development. “If any part of a chain breaks, all the system would break down. We have to cut [the bad part] out,” he said, referring to the failed banks.
Closed banks are Angkor, Bangkok, Global Commercial, Pacific Commercial, Agricultural and Commercial, Great International, Rich Nation, Cambodia International, Cambodia Farmers, and Chansavanvong.
May Bank, Cambodia Public Bank, Standard Chartered and First Commercial Bank—all international agencies—are licensed under the new law.
Relicensing of banks is a top priority of the banking reform required by the international donor community. Economic observers say the bank’s decision is the first step in developing Cambodia’s banking system.
“It’s good for Cambodia,” said Kimthy Chao, an economic analyst with the International Management, Investment and Consultants. He said the requirements would shore up the banking sector, provide better customer service and raise public confidence
Herve LeClerc, the International Monetary Fund’s expert working with the central bank, said that strengthening the banking system could mobilize domestic savings by encouraging people to deposit their money into commercial banks, which in turn could loan money to investors.
According to the central bank, the 11 banks will appoint provisional administrators to take care of the banks’ business and could select an agency to liquidate the bank’s assets, to collect loans and pay depositors back.
However, apparently none of the 11 shut down banks have announced the closure to their customers. On Sunday, none of the eight banks visited among the 11 put a closure notice up.
Although it is unclear what impact the closures will have, economists as well as customers say it is the central bank’s responsibility to take care of depositors at the closed banks.
