Phan Ho, deputy director general of the National Bank, says the amount of money currently in circulation is not sustainable, with banks lending too much, too quickly.

A bureaucratic pinch-hitter, Phan Ho, 56, began his career at the Ministry of Labor and Social Affairs in 1972. After the KR years he joined the Ministry of Planning in 1982. For the past decade, he’s settled accounts in the Kingdom’s burgeoning financial sector as deputy director general of the National Bank of Cambodia and secretary general of the recently formed regulatory watchdog, the Financial Intelligence Unit. Ho gave his two cents worth on June 20 to the Post’s Brendan Brady and Kay Kimsong on balancing the Kingdom’s economic exuberance with responsible monetary policy.

What’s the role of the National Bank of Cambodia?

The National Bank of Cambodia is the country’s central bank, the supervisory authority of the banking system, so we license and regulate commercial banks. There are now 16 commercial banks.

What is the National Bank’s top priority?

The area that attracts most of our attention is the soundness and sustainability of the banking system, its ability to grow while maintaining compliance. It’s our job to create growth, and there’s been more sustainable growth during the last three or four years. But if the amount of money in circulation is not sustainable, the growth is not sustainable. Right now, the growth of loans and bank deposits is very rapid, with outstanding loans growing by 80 percent in the past year.

What’s a more comfortable growth rate?

Twenty or 30 percent. 

Capital reserve requirements are slated to rise at the end of July. Why?

Our economy is growing a bit faster than normal, especially in terms of loans and deposits. We see that the banks have excess liquidity and that’s why we have raised the reserve requirement. We want to tighten up on credit because most loans are going to big real estate projects that don’t necessarily benefit the economy.

Is there a particular sector that’s of concern to the National Bank?

We are concerned about construction loans and housing loans. We understand the situation in the United States about subprime mortgages and the problem in which people lose their ability to pay off loans. That’s why we are taking action to prevent this, but achieving an impact will take some time.

Does the National Bank control the flow of capital through Cambodia’s borders?

Formal transfers between banks can be monitored, but we still have informal transfers that we cannot control. It’s difficult for the central bank to know about this money because some of it is kept in people’s pockets and some is related to other government institutions.

You can see all the big construction projects like Camko, the Gold 42 Towers, and the International Finance Complex. The costs of those projects are very high and we can’t control how much money they bring in from outside the  country and how much they pay out to contractors. There are also informal transfers from expatriates in some land and housing sales, and there is also a lot of speculation in real estate by individual Cambodians. It is very difficult for us to know the extent of it. 

What is the basis for Cambodia’s currency system?

It used to be gold-backed but now other countries don’t use the gold standard anymore so they can print what they need. Our currency is not transferable; it can only be used locally. So now we just pay the paper and printing costs. We have foreign reserves of about $2 billion and, normally, the amount of money in circulation should be proportionate to double GDP.

Does the dollarization of the Cambodian economy pose problems for consumers or enterprises?

It’s market-driven. It’s very difficult for the central bank to control. We promote the use of the riel by requiring all taxes and utilities be paid in riel, and we ask government agencies to pay salaries in riel. It all used to be paid in dollars, but now it’s paid in riel. That’s our policy since 2000. The larger denomination riel notes are in circulation but are not popular.

Will the government begin paying civil servants through direct, electronic deposit? Some government agencies already have a deal with Canadia Bank for salary payment, and we’re expanding to all government agencies in two or three years. It’s safer than carrying money from Phnom Penh to the provinces. But everyday there are still trucks of money going to the provinces.

Will the stock market be established on schedule?

It will be on time. We are conducting local training and are also sending people to be trained in South Korea. A lot of companies don’t want to comply with disclosure requirements for listing, but this is not a regulatory matter for the central bank, it’s for the Ministry of Finance.

Some opposition parties and NGOs have raised concerns over money laundering in Cambodia through casinos and land speculation. Is the National Bank monitoring money laundering?

We are worried about this issue. That’s why we established the Financial Intelligence Unit to control the flow of money through the country’s borders. The FIU has already met and its members include the National Bank, Ministry of Justice, Ministry of Interior, Ministry of Economy and Finance and the Council of Ministers. All the related ministries have received technical assistance from Japan, France, Australia, the IMF, and the World Bank. Training has taken place and some people have already been arrested.

What if someone carries a suitcase of cash to a casino in Poipet? How do you monitor this kind of activity?

This requires the Ministry of Finance to issue another sub-decree asking the gambling industry to report suspicious activity. This has not happened yet because we were just established in May of this year. The law has been issued, but we still need a sub-decree to enforce it.