M edia reports on recent events in Phnom Penh's banking circles have brought the
regulations of commercial banks under public scrutiny. This week's column will
review those regulations, and the authority of the National Bank of Cambodia
("NBC") to regulate commercial bank activity.
The regulatory authority of
the NBC arises from three sources. One, the express provisions of the banking
laws and regulations. Two, international banking practices. And three, the broad
powers of a central bank to intervene in the economy through monetary control or
regulation of financial institutions in order to guide the economy to
prosperity. This column will focus on the first source of authority.
The National Bank
The National Bank has the authority to
supervise and regulate all financial institutions in Cambodia. It has the power
to "manage monetary transactions, credit, domestic and international
settlements, and foreign exchange, precious metals and stones."
The
National Bank may require any bank to submit relevant reports on banking
activities. It may appoint an examiner to investigate bank operations, appoint a
control committee to run and manage the bank, establish credit ceilings and
foreign exchange requirements set banking business hours, and establish interest
rate guidelines.
The National Bank has the power to put any bank
operating in violation of the law under conservatorship in order to preserve,
remedy or resolve that bank's financial position. The conservator has the
authority to liquidate the bank's assets, if necessary.
Licensing
The National Bank has the sole authority to license
commercial banks in Cambodia. Licensing is a two stage process. The National
Bank first issues a temporary license, called a "Letter of Agreements in
Principle" which is valid for 12 months. During this twelve month period, the
bank must prepare to comply with the National Bank's technical requirements.
After such requirements are met, the bank will be granted an official banking
license. The law does not contain any eligibility criteria for formation of a
commercial bank.
The National Bank has the power to revoke any banking
license for violation of the banking laws and regulations. The license is not
transferable, except with the prior written approval of the National Bank.
Legal Form
All banks must be formed as limited liability
companies. This means that shareholders of a bank are liable to pay the bank's
debts up to the capital contribution of each shareholder.
According to a
1992 sub-decree, no individual shareholder may own more than 20% of the shares.
Bank shares are fully transferable, upon payment of a fee of 1% of the share
value.
Board of Directors and Management
Certain persons are forbidden
from holding positions on the board of directors of a commercial bank, or act in
a managerial capacity of any kind. For example, persons convicted of crimes of
dishonesty, as well as government officials in political positions, may not hold
such positions.
Capital requirements
Under a 1994 National Bank regulation, the
registered capital of commercial banks must be "at least Riel 10 Billion."
Current bank policy sets this amount at US$5,000,000. All of this registered
capital must be paid into an account in the commercial bank's name at the
National Bank before the bank can begin operations. According to the 1992
Banking sub-decree, this minimum capital must be "maintained at all
times."
A bank cannot lend any amount greater than 20% of its total
capital (paid up capital plus reserves plus retained earnings).
Reserve requirements
Banks must maintain two types of reserves:
a capital reserve of 5% to 15% of the registered capital, and a deposit reserve
of 5% to 50% of deposits and other debts, calculated monthly. Current NBC
regulations sets both the deposit reserve and capital reserve at 5%.
Reporting requirements
Banks are required to issue a monthly
reserve report to the National Bank. Banks will be fined for temporary failure
to maintain proper reserves. Banks which fail to maintain reserves for more than
two consecutive months, or three months during any year may be penalized as
outlined below.
The National Bank may also require commercial banks to
submit reports setting out the amount of deposits on other liabilities, the
amount of cash present at any time (Riel and foreign exchange), and any other
information the National Bank may request.
Accounting
All commercial banks must appoint independent
auditors. The accounting of commercial banks must be performed by independent
auditors who are not employees of the banks.
Penalties
The National Bank has at its disposition a range of
penalties it may use against commercial banks for violations of banking laws and
regulations. The National Bank may "admonish" commercial banks, require a change
of management, suspend operations of banks, and also revoke the license of
banks. Commercial banks and their directors are also subject to fines of 500,000
to 30,000,000 Riels or imprisonment of one month to 5 years. The National Bank
also has the authority to bring judicial action against banks.
There are
currently 29 banks licensed to operate in Cambodia. Of these, five are joint
ventures with the National Bank of Cambodia, six are branches of foreign banks,
one is a representative office of a foreign bank, and sixteen are other private
banks, most of which are unique to Cambodia.
A new draft National Banking
law has been approved by the Council of Ministers and awaits promulgation by the
National Assembly.
- David Doran is the resident Director in the Phnom Penh office of Dirksen
Flipse Doran & Le.. He has been working in and out of Cambodia - and writing
on Cambodian legal issues - since 1992.
