T he first government bank shutdown, of the Credit Bank of Cambodia, surprised

some members of the banking community but was oddly welcomed by others. They

said that with 29 banks and perhaps 100,000 customers, the country is simply

"overbanked."

"Twenty nine banks! It's too many," said one Thai bank

manager, laughing. "They approve anyone. They approve people without banking

experience. It is not easy to run a bank in Asia."

Another bank manager

from Singapore agreed that banks seemed to sprout up in Phnom Penh during the

last year like green rice. "There are too many commercial banks," he said,

suggesting that more closings might come. Still, he said he was surprised by the

suddenness of the May 6 shutdown.

If the bankers are right, competition

may eventually lead to a shrinking of the industry. But the reasons behind the

closing of the Credit Bank of Cambodia, owned by Canadian Cambodians, appeared

to have nothing to do with the crowded market. A statement from Thor Peng Leath,

the general governor of the National Bank of Cambodia, accused the Credit Bank

of being grossly remiss in meeting regulatory requirements and said the decision

to withdraw the bank's license was to protect customers.

The governor

said that Credit Bank's banking license was being withdrawn because:

 

• the bank fell below the minimum capital requirement of $5 million

  dollars,

• it had failed to provide its shareholders with details of its

  condition,

• its reports to the National Bank had been irregular,
• it failed to produce an accounting of assets and liabilities when

  asked,

• it failed to appoint a 1994 auditor, and,
• its senior management had not remedied the problems despite warnings from

  the National Bank.

Despite those allegations, the governor said if the Credit Bank proves it

"can meet the National Bank's requirements, the license could be

reissued."

Besides the regulatory lapses, other allegations were still

surfacing this week involving possible money laundering, big losses incurred by

the bank in futures trading, an irate securities brokerage from Canada, and

threats of a lawsuit.

The Credit Bank remained closed with five guards

monitoring its iron gates, the flags of Cambodia and Canada hanging limply over

the entrance. Sy Veng Chun, chairman of the bank, couldn't be located for

comment. His lawyer, Sam Sok Phal, said the chairman was meeting with the

regulators in hopes of getting the bank reopened.

Credit Bank was

licensed a little less than a year ago, along with a flock of other banks from

Hong Kong, Singapore, Thailand and other countries, as well as Cambodia, at the

time when the idea was to get a private banking industry on its feet. Since

then, new licenses have been stopped.

For several months, the financial

reports filed by Credit Bank showed little activity, but that was not surprising

because other banks also didn't appear to have any customers. "The bank did not

have any deposits, month after month," said Tioulong Saumura, deputy governor of

the National Bank. She said the bank's financial problems became evident when it

filed its annual report March 31, showing its capital had fallen below the

minimum requirement of 10 billion riel, or $5 million. Bank officials were given

15 days to come up with new capital, and when they failed the decision was made

to close the bank.

Sam Sok Phal, the lawyer for Credit Bank, said the

closing was premature. He said it occurred only after a Canadian brokerage house

complained to the National Bank that the Credit Bank owed it as much as $1.5

million for futures trading losses. He said the stock brokerage, Marleau Lemire

Clearing Inc. of Montreal tried to sue his client in Canada. Now, he said, "they

come here to make trouble."

"We may sue Marleau Lemire," he said. "My

client wants to negotiate with the National Bank first."

Saumura said the

fact the Credit Bank had relatively few depositors appeared to be good news for

regulators because it meant the bank had few liabilities. She said that so far

only three depositors had been identified but more may come forward. She said

the bank had some loans outstanding, and an administrator was supposed to be

appointed to oversee the operation.

She was skeptical about the bank's

prospects for reopening, despite the National Bank governor's encouraging

statement. "I don't think he should have said so," she said, referring to the

governor's statement. "It looks like he is stepping backwards."

The

possibility of the Credit Bank's shareholders being linked to money laundering

was also raised.

Saumura said it appeared that one of Credit Bank's

shareholders had been charged in Canada in a money laundering

case.

Saumura has been working on a money laundering analysis for some

time. She said her report will recommend that the government set up an agency to

investigate Cambodia banking and money laundering. It is commonly believed that

many banks in Cambodia are involved in laundering cash. She said the governor

has been balking at releasing her recommendations. "I don't know why he won't. I

am going to release it even without the permission of the governor," she

said.

She said one of the indications that Credit Bank might be involved

in money laundering was that the bank was set up with nominee shareholders,

presumably in order to not disclose the true identity of the shareholders. In

addition, she said, one shareholder, the wife of the bank's chairman, had been

implicated in money laundering in Canada. "She is Canadian and Cambodian,"

Saumura said.

Sam Sok Phal, the bank's lawyer, said that the money

laundering charges were not true. "She didn't do it." He said all the problems

stem from the stock brokerage. In a May 6 article in the Montreal

Gazette, the company, described as a "fast growing Montreal brokerage firm",

had just been fined $165,000 by securities regulators for brokerage violations.

He would not identify Credit Bank's real shareholders.

The National Bank

officials said they have been inundated with questions about the bank's

closure.

Saumura denied that any more banks were due to be shut down.

"When a new sector opens up it is normal that new companies come in; it is also

normal that some will go away. Some are going to close by themselves. I prefer

to let natural selection take place."

She did say that Emperor

International Bank might come under scrutiny in the wake of a report in the

Far Eastern Economic Review. The magazine said the principals of Emperor,

a Hong Kong conglomerate, had legal problems in Hong Kong and China. The

magazine also said Hun Sen himself went to Hong Kong to give Emperor its

Cambodian banking license in 1993.

Thor Peng Leath also discounted

speculation that more banks will close. "Don't worry about that," he said.