The central bank’s decision to stop issuing new business licences to microfinance deposit-taking institutions (MDI) and encourage mergers among existing banking and financial institutions is a viable strategy that will help strengthen the Cambodian financial sector and is in line with current economic growth trends, industry insiders have said.

The National Bank of Cambodia (NBC) announced the decision in a December 6 statement, commenting that the Kingdom’s banking and financial institutions are “proudly growing” in quality, size and scope.

The central bank explained that the move is meant to further strengthen the capacity of banking and financial institutions, as well as to monitor financial stability and contribute to the development of the national economy.

“NBC welcomes investors to invest in existing banking and financial institutions … and encourages the merger of existing banking and financial institutions to improve the provision of quality, efficient and affordable financial services for companies, enterprises and the public.”

Cambodia Microfinance Association (CMA) Communications Department director Kaing Tongngy told The Post on December 8 that due to the Kingdom’s historically slow economic growth and instability, the financial sector needed more MDIs for their services to reach all the desired goals.

However, he argued that the Cambodian financial sector now shows strength, and services are available almost everywhere in the country, so increasing the number of MDIs would no longer be necessary.

Still, the quality and innovation of new services requires a boost at this stage in time, he said.

He added that the NBC’s announcement would also have a positive effect on the financial sector, requiring players to step up their game and expand into additional services.

He underlined that this would provide the people with attractive recognised institutions where they can save their money, as opposed to what he termed “piglets” which he noted had once held a decent-sized share of the market.

“If we look at the current situation, there is no need for new establishments as there are currently 61 financial institutions [including banks and microfinance institutions (MFI)] in Cambodia that accept deposits,” Tongngy said, noting that 55 are banking institutions and the others six are MFIs: Prasak, Mohanokor, Amret, LOLC, WB and AMK.

Sok Voeun, CEO of Sri Lankan-owned LOLC (Cambodia) Plc (LOLC), which has a bond listed on the Cambodia Securities Exchange, lauded the announcement as a further boost to NBC’s commitment to MDIs, to work hard and further improve their services, bearing in mind that the financial sector plays an important role in sustaining national economic growth.

He shared Tongngy’s view that MDI services are now deployed almost everywhere in the country, and that further licensing was no longer necessary. But he said existing licensed institutions need to strengthen services and improve quality.

“With more than 50 banking institutions and six MDIs, the deposit-taking institutions have adequate capacity to serve the people in the Kingdom,” Voeun said, pointing out that this was not the first time the NBC has issued such a statement.

Hong Vanak, director of International Economics at the Royal Academy of Cambodia, said the Kingdom’s MFI market has grown rapidly over the past two decades, especially in the last 10 years, and has seen the number of players increase steadily.

He contended that the announcement comes at an appropriate time. “The number of MDIs now is proportional to the population and the size of the national economy. An excess in the number of such licences granted could also pose some risks.”

However, Vanak suggested the suspension in issuance of new licences be temporary, and lifted when national economic activity is “100 per cent restored”.

As of September 30, over 2.8 million clients had deposited $4.073 billion in the Kingdom’s six MDIs, up by 330,000 clients and about $190 million from June 30, according to Tongngy.