Global financial fragility causes headaches for the world’s economic think-tanks as they try to find flexible, sustainable resolutions.

Nguon Sokha, one of Cambodia National Bank’s key policy-makers, spoke to the Post’s Deputy Business Editor, May Kunmakara, about the country’s successes and challenges in its financial sector during the IMF and World Bank annual meeting in Tokyo earlier this month.

Could you tell me about the development of Cambodia's financial sector?

We’ve  had great improvements, and we’re very financially stable, despite the issues faced by many other countries in the world in terms of their macro-economic issues and the sovereign debt in Europe.

Recently, conclusions from the IMF's mission to Cambodia said there has been positive development of the country's economy—mainly in terms of its solid economic base.

Moreover, the IMF continues its support for enhancing the capacity of the National Bank's staff and strengthening micro-finance institution management. Now we are modernising our settlement system in response to increasing demand.

We have seen financial-sector fragility in the rest of the world, and that has become a big question to deal with. If we look at Cambodia, we see it’s still flourishing; do you have any concerns about the impact of overseas struggles on Cambodia?

As the central bank, we are the regulator, and we’re still trying to enhance our audit and observation capacity. The issue is not one-sided. To better the industry, banks themselves need to decide to improve as well. That’s why we encourage them to build up or advance their own capacity. We’ve observed that they learnt from the experience of the global crisis as well as the Asian crisis in 1997 and 1998. They clearly understand  how to improve their governance and risk management to insure themselves against such a crisis.

At a time of global financial fragility, about 90 per cent of Cambodia’s micro-finance institutions are loaning from foreign funds especially from European countries. What’s the NBC’s view on this?

Of course, I don't see any downside to the development of the micro-finance sector, because they’ve got a very good, long-term relationship with their partners, most of which are multilateral agencies. It will definitely be a concern for the industry.

Moreover, we also allow some MFIs to hold deposit-taking licences, and this allows them to have a domestic source of funding.  

Additionally, we offer incentives to encourage connections between commercial banks and MFIs because some banks have surplus capital that they could loan to MFIs. This initiative will also help the MFIs to diversify their source of funds.

We see the amount of loan and deposit is running in parallel. What is the NBC's view?

I think the number of loans granted is increasing by about 30 per cent annually.

Indeed, we really welcome the increase in economic growth. Moreover, the big amount of loans has been directed to some priority sectors that are set by the government.

For instance we have noticed that loans for the agricultural sector are increasing a lot.

As the regulator, we are also trying to observe the increase in loans, because we want its growth to be sustainable and not put financial and monetary stability at risk.

We do not have a problem with loan capacity, but the challenge is how to keep the  growth in loans manageable.

We are a dollarised country, so what is the National Bank of Cambodia's policy to enhance the monetary policy?

Implementation of monetary policy is very complicated. It requires each country to consider clearly the various factors for implementation of monetary policy.

Recently, the NBC increased the reserve requirement rate from 12 per cent to 12.5 per cent. This implementation of monetary policy sends a message to banks that the authorities are really concentrating on the fast growth of loans.

It doesn’t put more of a burden on banks. We think now is a very good time for us to enhance monetary policy, because we have macro-economic stability and we are in a time of peace.

In contrast, if we implement the strict monetary policy in a difficult economic situation, there will be a problem.

To contact the reporter on this story: May Kunmakara at [email protected]