The National Bank of Cambodia (NBC) has proved to be forward-thinking as well as adept at coming up with regulations that allow the financial sector in the country to keep up with the changing financial trends taking place both globally and regionally.
Chairman of the Association of Banks in Cambodia Dr In Channy says NBC’s initiatives in terms of coming up with the right rules and regulations have helped to create a conducive environment for both financial and banking institutions to grow.
“Since banking institutions provide financial services such as loans and other systems such as electronic means, it’s important to do so in a sound and secure environment,” In says. He adds the NBC’s role as a supervising financial institution has made sure the regulations have a similar impact in every sector and not just a particular one. While areas such as agriculture and real estate possess higher risks, the central bank still gives equal importance to everything under its authority.
“The regulations consider the whole industry and this allows banks to decide on their financial services individually,” says In. Sectors such as agriculture have always been treated as a high risk category subject to external factors such as international pricing, disease as well as other natural disasters including floods. Hence, In says that while regulations by the central bank treat all sectors similarly, individual banks are left to decide based on their expertise and coordination with their customers. The chairman of the association is happy that the regulations from the central bank prevent commercial banks from mismatching their sources of funds to the financial services they are providing.
“The prakas [directives] on capital buffers for instance play an important role in ensuring financial institutions in the country have strong solvency because banks are significant in providing financial services to customers from all walks of life,” he adds While the minimum solvency ratio is at 17 percent, the prakas on capital buffers from the NBC require all banks to add 1.25 percent on top of the minimum ratios every year. “Certain requirements such as this do not just play a role on risk mitigation but make sure the financial sector continues to have a healthy performance,” In says.
Access to finance in the country has seen big strides in recent years. The NBC’s commitment to reduce the unbanked population year after year has paid off as positive results are seen in rising numbers of bank accounts and official loans and deposits. “While there are plenty of ATMs in the country, not every province has easy access to them,” says In, referring to the rise of mobile banking that allows customers to access their finance anytime. He says NBC’s constant encouragement to banks and financial institutions has pushed all players to not just be limited to what has been done so far but also to constantly open up more opportunities. Financial organisations say Cambodia’s economy has shown an average growth of 7 percent annual GDP.
However the trade war between two superpower economies, China and the US, has instilled worry among governments and financial sectors in the region. In, meanwhile,agrees that although the trade war is a big international concern, in reality Cambodia would be able to benefit from it. “Factories in China will be able to move to Cambodia, especially now we have a better infrastructure,” he says.
Broadening the riel
He goes on to say that the central bank as a regulator is to bring all players under the rule of law in order to protect all financial institutions as well as their customers. He highlights the fact that it has been successful in the task so far.
“The central bank has followed international and regional standards, allowing banks to continue communicating with their partners both globally and regionally,” In says. “Banks are like the backbone of the economy because both the financial sector and economy complement one another. One of the more significant roles by the central bank is to grow the strength of the national currency, the riel. In says the riel’s growth over the years has continued to instill confidence in the financial sector. He hopes to see the riel continue to fulfill its role as the national currency and keep broadening in years to come.