IMF hits out at banking oversight

Photo by: Wesley Monts
A motodop driver parks in front of the National Bank of Cambodia on Norodom Boulevard, Phnom Penh, today.

via CAAI

Tuesday, 08 February 2011 19:48 Jeremy Mullins

The International Monetary Fund has claimed the oversight responsibilities of Cambodia’s central bank “clearly outstrips its capacity and resources” and believes it should consider a temporary halt on licensing new banks.

Human resources, crisis management and enforcement were marked as concerns for the National Bank of Cambodia (NBC) in the IMF report, which called Cambodia’s financial system “relatively shallow”.

“[IMF] staff strongly recommended that a moratorium on new bank licensing be formally placed as long as supervisory capacity and resources are inadequate,” today’s 2010 Country Report stated.

“Robust financial sector oversight is a precondition for a more resilient financial system that would enable Cambodia to meet its economic potential.”

New NBC director general Nguon Sokha said today that there was an ongoing effort to strengthen the central bank, adding it would take a better approach to licensing rather than considering a freeze.

“We need to strengthen the competition in the banking sector,” she said.

The NBC was addressing its constraints through measures such as adding more staff and improving its approach.

Internal changes to improve the effectiveness of its Banking Supervision Department had been made, she said, and the bank was working with the IMF on training.

Representatives from the banking sector remained supportive of the NBC today, but raised some sector concerns.

Canadia Bank vice president Dieter Billmeier said he felt the NBC generally did well in terms of oversight.

“As far as we are concerned, so far so good,” he said today.

But with more than 30 banks operating in the Kingdom, he said a lack of human resources was a concern for both public and private industry players.

One suggestion to alleviate the problem was to make the definition of a financial year more flexible, he said.

Currently, the financial year for banks and companies must coincide with the calendar year, meaning oversight bodies as well as independent overseers are annually overworked for a short period.

Billmeier said a more flexible definition for the end of the year – such as allowing the end of a financial year to coincide with the end of a quarter – would help to alleviate this.

Kookmin Bank Cambodia chief executive officer Jang Ki-sung said that tightening the criteria for a banking licence would also strengthen the players in the sector.

The NBC had also taken policy positions to improve the sector as of late, such as tripling the minimum amount of registered capital for banks to 150 billion riel, or US$37.07 million, at the end of 2010.

As a result, Angkor Capital Bank shareholders changed the firm from a commercial to a specialised bank.

“I think they [the NBC] were going the right way,” said Jang Ki-sung today.

The IMF added in its report that five banks constituted nearly 80 percent of total credit in Cambodia.

The economic recovery was an opportunity to clean up bank balance sheets and reduce vulnerabilities while maintaining sector confidence, it said.

Meanwhile, the IMF projected GDP growth for 2010 would be 6.8 percent, and 6.5 percent in 2012.

“Cambodia was hit harder than comparator countries by the global recession, given vulnerabilities that are in part a legacy of a generation lost by civil strife,” it said.