Logo of Phnom Penh Post newspaper Phnom Penh Post - Revised capital rules driving financial sector FDI growth

Revised capital rules driving financial sector FDI growth

Content image - Phnom Penh Post
Afternoon traffic passes an ANZ Royal Bank branch in Phnom Penh’s Daun Penh district in late March. Vireak Mai

Revised capital rules driving financial sector FDI growth

The central bank’s decision last March to raise the minimum capital requirements of financial institutions in order to strengthen and stabilise the financial sector has led to an increase in foreign capital flowing into the banking sector, according to industry experts.

In its annual report released on Sunday, the National Bank of Cambodia (NBC) noted that total foreign direct investment (FDI) into lending institutions accounted for nearly a quarter of the $2.15 billion injected into the economy last year. In total, over $539 million in FDI was directed to the financial institutions, a 5 percent increase over 2015.

In Channy, president and CEO of Acleda Bank, said the increase of foreign capital pumped into the banking sector showed the extent to which financial institutions were still largely dependent on overseas partners.

“The NBC’s regulation that requires commercial banks to increase their minimum capital requirements is double the previous amount, which is a big increase for some banks,” he said. “So they need to rely on partners from abroad to fulfil to it.”

Last March, the NBC implemented regulation that for commercial banks increases minimum capital requirements from $37.5 million to $75 million, while microfinance finance institutions (MFIs) increase from $62,500 to $1.5 million with deposit-taking MFIs seeing the largest increase, from $2.5 million to $30 million.

Financial institutions have until March of 2018 to fulfil the requirements, according to a circular published by the central bank last June.

“Because of this, I think there will be more capital flowing into the financial sector because many institutions fund these [banks and MFIs],” said Channy, projecting even further FDI growth in 2017.

He added that FDI could be expected to grow further as many banks felt pressure to hold more cash than capital and liquidity regulations demand as local deposits remained limited.

Hout Ieng Tong, president of the Cambodia Microfinance Association, said MFIs have had to increase efforts to win over foreign partners or sell larger stakes of their institutions to existing shareholders to meet the NBC’s demands.

However, he said that the majority of MFIs were already in a healthy capital position

“I think for the top 20 to 30 MFIs don’t have many concerns to fulfil the central bank’s requirements, but they still also need funds from partners abroad,” he said.

“Nevertheless, I believe that there will be more flow of foreign capital into Cambodia’s financial institutions and it will help to strengthen our country’s economy.”

Viveka Nand Dubey, chairman of Bank of India’s Phnom Penh branch, told the Post last month that he expects banks appealing to their foreign investors for funds would have to demonstrate that they could generate an adequate return on equity to justify the additional investment.

“Whatever capital we bring in we will have to deploy it, but where?” he said. “We’ll have to increase our loan portfolio, but if you deploy money and it is not returned you’ll not even earn a single penny.”

MOST VIEWED

  • WHO: Covid in Cambodia goes into new phase

    The World Health Organisation (WHO) in Cambodia said that Cambodia has reached a new phase of the pandemic with “decreasing case numbers, high vaccination coverage and a more transmissible circulating variant threatening a hidden surge”. In a press release on September 6, the WHO said that

  • 'Pursue your goals, reach out to me': Young diplomat tapped as envoy to South Korea

    Chring Botum Rangsay was a secretary of state at the Ministry of Foreign Affairs and International Cooperation before being designated as the new Cambodian ambassador to South Korea. According to her official CV published on the foreign ministry’s website, she started her first government

  • International air visitor arrivals dip 93%

    The number of foreign tourists entering Cambodia through the Kingdom’s three international airports witnessed a sharp 92.5 per cent year-on-year decline in the first seven months of this year, according to the Ministry of Tourism. The airports handled 51,729 international tourists in the January-July period versus

  • School reopening ‘offers model for other sectors’

    World Health Organisation (WHO) representative to Cambodia Li Ailan said school reopening process should be used as a role model for reopening other sectors currently mothballed by the Covid-19 pandemic. Li strongly supports the government’s decision to reopen schools, saying it is a decision

  • Covid jab drive for 6-11 age group to begin Sept 17

    Prime Minister Hun Sen has permitted Covid-19 vaccinations for over 1.8 million children aged 6-11 across the country from September 17 in order for them to return to school after a long hiatus. Hun Sen also hinted that vaccinations for the 3-6 age group will follow in

  • Is Cambodia’s microfinance sector running its course?

    Economic growth and the strength of the banking system might have prompted a slow decline of the microfinance segment that has been raising a population ‘The MFI business model is over,” opined David Van, a Cambodian investment expert, recently. He felt that in a couple