A year ago customers couldn't even write out a check in Cambodia's antiquated banking

system. Now not only can they write checks and use credit cards, but they can take

their pick from one of the highest numbers of foreign banks per capita of any country

in Southeast Asia.

Since the signing of the peace agreement in October 1991, ten foreign banks have

set up shop in Cambodia. And over the next few months, a further flurry of new arrivals

is expected, including a joint venture, the Cambodia-Russian bank.

"Every bank thinks Cambodia is the new money market," said Praprut Usahacharuenporn,

deputy managing director of Cambodian Commercial Bank. "They all see big potential

for business."

The only problem is a lack of regulations and a lack of business opportunities as

competition takes its toll on the limited number of investments available in Cambodia.

Not only is the country still awaiting ratification of a Banking Act, but until July

1991, when the National Bank of Cambodia awarded the first joint-venture licence

to Siam Commercial Bank, the nation didn't even have a private bank.

Now with the support of the International Monetary Fund and the Bank of Thailand,

the financial system is rapidly being brought into the modern world. Eighteen months

ago, Cambodia's state-run commercial bank was split off from the National Bank, paving

the way for a new regulatory body. Since then new supervisory procedures have been

introduced along with even a few banking regulations.

"We want to improve our banking system to increase investment," said Kang

Y, deputy governor at the National Bank. "This is in order to conform to a market

economy."

But while some officials believe that the banks will generate sufficient new business,

others claim it is merely inviting the specter of a banking collapse.

"It has gone from the sublime to the ridiculous," said one foreign businessman.

"Everyone and anyone is being allowed in. And there is no way they can all make

money."

So far more than 50 banks have been granted permission to open up, although the government

says that in practice only the first 22 will be allowed to begin operations.

Several banks have even gone as far as hanging giant grand opening signs on buildings

in Phnom Penh, only to take them down again a few months later.

Nor are the locals necessarily benefitting from the influx. Fees for cashing a foreign

check in some banks can be as much as U.S. $20-or take a month to clear. Even cashing

travellers' checks requires payment of a 2 percent commission.

Safeguards for customers are also limited. As one banker said, "There is nothing

to stop a bank collecting deposits, stashing them into a few suitcases and leaving

town the next day."

Not all of the new arrivals are seen as opportunists though. After an absence of

almost 16 years, Standard Chartered Bank is back in Cambodia with a representative

office and a strong reputation for its well-established international business.

Meanwhile Siam Commercial Bank and Bangkok Bank hope to capitalize on their strong

positions in trade finance with neighboring Thailand, while Krung Thai could benefit

from links with the country's second largest banking institution.

But what will the others do? Most expect profits to come from taking deposits and

from foreign exchange remittance. But with only limited investment opportunities

and even fewer lending opportunities, only the banks with good international connections

are expected to find profits.

Even making loans could prove dangerous, since currently no regulations exist for

collateral, which international bankers consider vital in guaranteeing repayment.

Banks also shoulder the declining value of the Cambodian riel and can never compete

with the black market exchange rates offered in street markets.

"There is a big lack of regulations," said Chai Hongvisitkul, manager of

Krung Thai Bank. "Because of the risks, we charge big margins."

Why the Phnom Penh authorities allowed so many banks in at all has raised a number

of conspiratorial theories. Annual per capita income in Cambodia is just U.S. $150.

Furthermore, suspicion of banks in general has remained deeply engrained ever since

the Khmer Rouge dynamited the old National Bank and abolished all forms of monetary

payment in favor of a barter system.

Indeed, perhaps the biggest boost for many banks is likely to come from short-term

inflows of funds deposited for UNTAC-related business activities. Even that, however,

is not going to last forever.

"A lot of the banks are purely short-term players hoping to make a buck while

the times are good," said one economist.

However, some banks are expanding. Cambodia Commercial Bank has already opened a

branch in Battambang, and expects to inaugurate additional branches in the next few

months in Siem Reap and Kompong Som. Standard Chartered Bank is also quietly positioning

itself by advising Cambodian banks on international transactions.

"We see considerable long term potential," said Kenny K.Y. Lam, manager

at the Agricultural and Commercial Bank of Cambodia.

Others claim they are merely waiting to see which way the elections go. "If

things turn bad, our costs are merely a building, a few typewriters and a couple

of staff," said another bank official.

Any reversal in the fortunes of banks or actual bank closures could severely hit

those very people whom the banks are hoping to lure back into the system. At the

Agricultural and Commercial Bank of Cambodia, 30 percent of the staff were recently

laid off. Krung Thai Bank has also revised its turnaround profitability from 1.5

years to 2.5 years.

In the short term, everyone is relying on peaceful elections to remedy the situation.

Longer term, however, a massive revamping of the banking laws is needed as well as

a more pragmatic approach by the National Bank to create the necessary framework

to maintain confidence in the system.

For the winners, that could still mean big gains. But for the smaller, lesser-known

players-and some of their clients-there could be a heavy price to pay.