Banking & Finance in Cambodia

on Apr, 17 2024

We provide an overview of Cambodia's banking and finance sector, including its evolution over the years, relevant laws and regulations for investment, and areas of growth.

How Has Cambodia's Banking Sector Evolved?

The Riel is the official national currency of Cambodia, with a stable exchange rate of approximately 4000 Riel to the US dollar. The currency was reintroduced to Cambodia after the fall of the Khmer Rouge regime in 1979. The government established the National Bank of Cambodia (NBC) in 1993 and adopted several laws to facilitate banking, such as:

Law on the Organisation and Conduct of the National Bank of Cambodia (1996)
Law on Banking and Finance in 1997
Law on Foreign Exchange (1997)
Law on Banking and Financial Institutions (1999)

Several new laws and regulations have been introduced since. Since 1993, Cambodia’s banking has undergone many developments including the classification of banks, the requirement to issue annual reports, the establishment of a credit bureau, the creation of a stock market, the requirement of external auditors and increased minimum capital requirements and the push for digital payment platforms and continued alignment with international institutions.

With an increasing number of banks and microfinance institutions (MFi), there are a few main associations to be aware of:

Association of Banks in Cambodia (ABC) - Represents the banking sector to the Cambodian government
ASEAN Bankers Association - Members include international, local and government-owned banks.
Cambodia Microfinance Association (CMA) - represents the MFis.

The progress made by the industry and the regulators has led to increasing digital transformation, increased investment in banking in Cambodia, the growing importance of the securities market, and the adoption of digital payments such as NBC's blockchain Bakong, and the de-dollarisation efforts by the NBC.

As of 2023, commercial banks dominate Cambodia's banking sector, with as many as 59 operating. The banking sector registered a 13.2% increase in total assets to USD $67.9 billion as reported by the National Bank of Cambodia in late 2022, and despite the pandemic, microfinance institutions’ assets have surged by 23.2% to USD $11.2 billion, with credit loans increasing to USD $9.7 billion and deposits at $5.1 billion.

One of the most significant challenges facing the sector is the high level of non-performing loans (NPLs), which stood at 2.9% in 2022; however, local bankers deem it manageable.

Is There A Capital Market In Cambodia?

The capital market in Cambodia is still in its nascent stages of development, with the Cambodia Securities Exchange (CSX) being the sole stock exchange in the country.

CSX was established in July 2011 as part of the Financial Sector Development Strategy 2006-2015. The exchange is regulated by the Securities and Exchange Commission and is owned by the Ministry of Economics and Finance (55%) and the Korean Stock Exchange (45%).

Securities and Exchange Regulator of Cambodia (SERC) is the arbitrator in case of conflicts between investors and securities firms.

Cambodia’s CSX value has been growing as an increasing number of companies have listed on stocks and bonds. By Q2 2023, the CSX market cap was worth approximately USD $3 billion with 11 equity-listed firms, and an additional nine corporate bond firms listed.

Hong Sok Hour, CEO of the Cambodia Securities Exchange anticipated the average trading account to increase to 50,000 accounts by the end of 2023 and for CSX's daily trading volume of $100 million by 2030.

How Is Cambodia’s Fintech Industry?

The COVID-19 pandemic rapidly accelerated Cambodia's adoption of digital technology, leading to a corresponding increase in the pace of progress in the fintech sector.

The adoption of fintech, ride-hailing, and food delivery apps, and the increased use of e-payments and digital payments (such as QR code scans) in urban areas have been impressive. The government is collaborating with private partners in these efforts and there are numerous new tech hubs, associations, and organisations working on this industry.

With a willingness to adopt technological advancements, including fintech. Although the fintech industry in Cambodia is still in its infancy, it shows great potential due to the increasing number of internet users, mobile phone penetration, and a young population.

There are rising fintech startups and bank-backed digital payment systems and well-known digital payments such as ABA, ACLEDA, Pi Pay, TrueMoney, Lyhour Paypro, Pay Go, e-Money, etc.

How Stable Is Cambodia's Banking Industry?

Cambodia's banking industry is currently considered stable and has been experiencing robust growth. A report by NBC indicated that the industry enjoyed strong growth in both loans and deposits in 2022, and there are new laws and regulations kept being updated aligning with its development.

It is also a significant improvement for Cambodia after being removed from the Financial Action Task Force (FATF) grey list for money laundering and financing terrorism (AML/CFT) watchlist in early 2023 after being re-enlisted in 2019.

As of 2023, there are several banks operating in Cambodia:

59 commercial banks
9 specialised banks
5 microfinance deposit-taking institutions
82 microfinance non-deposit-taking institutions
224 rural credit institutions
16 leasing companies, 5 third-party processors, 34 payment service institutions, 1 credit information provider, 6 representative offices of foreign banks, and 2,869 money changers.

Cambodia's banking and finance sector is well-developed, with a growing microfinance sector and an increasing fintech industry. The country's economic growth is projected to continue, with a 5.5-6 per cent GDP growth expected in 2023, driven by the revival of garment exports, the return of tourists, and the inflow of foreign direct investment.

How Many Types Of Banks Are There In Cambodia?

There are three main types of banks in Cambodia:

Type Of Bank	Description
Commercial Banks	These banks provide a wide range of financial services to individuals, businesses, and other organisations.
Specialised Banks	These banks specialise in a particular area of banking, such as development finance, agriculture, or infrastructure.
Microfinance Institutions (MFIs)	These institutions provide financial services to low-income individuals and small businesses.

In addition to these types of financial institutions, there are also microfinance deposit-taking institutions, representative offices, and financial leasing companies operating in Cambodia.

What Is The Regulatory Framework For The Banking Industry In Cambodia?

The legal framework for the Cambodian banking industry has been upgraded over the years, and new laws and regulations being issued to bring it in line with international standards and adapt to a changing banking environment.

It is worth noting that the NBC is responsible for conducting the monetary policy, and is the sole issuer of the national currency (Riel), and is also responsible for supervising and regulating the banking sector.

Cambodia's banking sector is governed by a quite sophisticated legal regime for such regulatory oversight and scrutiny when compared to other financial institutions within the country.

These key laws and regulations should serve as a reference:

The Law on the Organisation and Conduct of the National Bank of Cambodia (1996)
The Law and Regulations Applicable to Banks and Financial Institutions (2016)

Credit Bureau of Cambodia (CBC) - What does it do and how can it help?

Established in 2012, the Credit Bureau of Cambodia (CBC) enhances transparency in lending and mitigates the risks of excessive credit given to a single borrower by multiple financial institutions. It plays a crucial role in protecting the economy and simplifying credit processes. The CBC's detailed commercial credit reports help businesses manage credit portfolios efficiently, thereby reducing costs and increasing revenue opportunities. Additionally, its monitoring services provide robust protection against fraud through sophisticated investigation and identity authentication tools.

Main Responsibilities of the CBC:

Promoting Transparency: Enhancing the clarity and predictability of lending practices.
Risk Mitigation: Preventing excessive credit allocations to single borrowers by multiple lenders.
Credit Reporting: Providing detailed credit reports to assist businesses and financial institutions.
Fraud Protection: Offering monitoring services that safeguard against fraud through advanced investigative tools.
Data Management: Maintaining a central database that captures comprehensive consumer credit information.
Education and Awareness: Educating the public about the importance of good credit practices and the dangers of poor credit management.

By the end of 2019, the CBC's database included over 6 million consumers, representing more than 60% of Cambodia's adult population. This extensive collection of data supports the generation of more than 5.3 million credit reports annually, aiding financial institutions in making informed lending decisions. The CBC also fosters the development of new banking services that facilitate more accessible lending practices, often without traditional collateral requirements.

Through educational efforts, the CBC also enlightens consumers about the benefits of maintaining a good credit history and the potential negative impacts of poor financial decisions. In collaboration with the National Bank of Cambodia, local banks, microfinance institutions, and global technology partners, the CBC remains a cornerstone of Cambodia's financial infrastructure, contributing significantly to the economic stability of the country.

Are There Any Specific Regulations For Foreign Banks Operating In Cambodia?

Foreign banks and investors can build their presence in Cambodia by setting up a subsidiary, branch, or representative office. Both subsidiaries and branches are permitted to engage in banking activities in Cambodia.

For a subsidiary, a foreign investor can incorporate a bank in Cambodia. They have the option to fully own the bank by incorporating a new one or by purchasing an existing bank's shares. Cambodia's banking sector has no restrictions on foreign ownership or nationality restrictions.

NBC has issued several regulations pertaining to corporate governance, insolvency ratios, and liquidity ratios for banks and financial institutions.

The Cambodian banking industry has been liberalising interest rates on deposits and loans. However, due to concerns from consumers, NBC established an interest ceiling regulation in 2017. Prior to this, banks were free to set their own interest rates. Each financial sub-sector operates under a specific legislation and regulatory framework, with the NBC assuming supervisory and consumer protection responsibilities.

What Are The Main Areas For Growth In Cambodia's Banking Sector?

Cambodia's banking sector is expected to grow in areas such as:

Loans and deposits
Financial inclusion
Microfinance
Digital banking

These areas are driven by the country's economic growth and increasing demand for banking services.

Most Frequenly Asked Questions:

What currency is used in Cambodia?

The official currency of Cambodia is the riel (KHR), which is pegged at a value of around 4,000 riel to the US dollar although this can fluctuate slightly.
The US Dollars and the KHR are both accepted in Cambodia however and business and payments are complete with both currencies. Only USD notes are used, not coins. There are no riel coins either.
Damaged or torn dollar bills are rarely accepted but can be exchanged at the local money changers for a small fee or with NBC.
Cambodia still operates on a predominantly cash-based system but since around 2018 there is a rise in fintech and digital payment options. Cheques are used also, but sparingly.
Credit and debit cards are increasingly accepted at most hotels, restaurants and other retail outlets, but they will also accept larger US Dollar bills.
Large transactions are generally conducted in dollars, with the riel the equivalent of cents as there are no coins in use in Cambodia. Meanwhile, in rural areas, however, the riel is still the dominant currency.
Since 2020 the NBC (National Bank of Cambodia) has been increasing its efforts to promote the local currency and de-dollarization, and has stopped dealing with small USD notes such as $1, $2 and $5 bills. NBC claims this is to sustain the current economic expansion and increase the provision of financial services in Cambodia.

Is it easy to move money in and out of Cambodia?

The Foreign Exchange Law 2007 states money can be freely and reliably transferred in and out of Cambodia through an authorized intermediary via a licensed bank.
Most Cambodian banks can transfer money internationally, though funds over a certain amount may take longer to process and require central bank approval.
Transfers from overseas accounts transit through a correspondent bank in the USA so can take a couple of days, and the correspondent bank may charge a processing fee, as may the originating bank for incoming transfers, or the destination bank in the case of outgoing payments.
Western Union and MoneyGram services are available but a number of new services are also offering these money exchange services, Wing, Xoom etc.
For relatively small amounts, ATM withdrawals from an international account can be a cost-effective method of transferring money into Cambodia, especially if you choose an ATM service where the local bank makes no charge.
With the rise in use of smartphones across Cambodia comes with it a need for banking institutions to adapt to consumer needs and digital payments are on the rise in Cambodia.
Mobile payment services in Cambodia include Wing and Pi Pay, are two the leading electronic money transfer systems – transfers are straightforward to make and cost a minimal amount to be transferred and usually free between accounts using the same companies app.
PayPal and Google checkout are not currently licensed to operate from Cambodia although some parts of PayPal do work, money can’t be withdrawn in Cambodia directly from a PayPal account.
Alipay and WeChat Pay, both popular Chinese e-wallet apps can also be used in Cambodia.

Is money laundering a problem in Cambodia?

There have been concerns from the international business community that Cambodia is vulnerable to money laundering, the Government said its tightened up its laws.
In March 2014, the Council of Ministers approved a sub-decree freezing assets of terrorist organisations and supporting institutions in compliance with UN resolutions.
In 2004, Cambodia joined the Asia/Pacific Group on Money Laundering, meaning the country must meet international standards to fight financial crime.
In 2007, a law on money laundering and terrorist financing was passed.
The Cambodia Financial Intelligence Unit (CAFIU) was established in the National Bank of Cambodia in 2008.
The CAFIU, the National Bank unit tasked with combating money laundering, is working very hard to de-list the country from any grey lists.
In February 2019, the Financial Action Task Force (FATF) added Cambodia to its watch list of countries with deficiencies in countering money laundering and the funding of terrorism.
In 2020, the E.U. has listed Cambodia as one of 12 “high-risk” countries with deficient anti-money laundering and counter-terrorism financing efforts.
The Ministry of Interior in Cambodia has been working on two draft laws – one on anti-money laundering and terrorism financing, and the other on combating proliferation financing to address the concerns.

What if I am seeking additional finance in Cambodia?

There is a lack of equity or bond markets in the country meaning alternative investment must be sought through alternative avenues.
Banks will only usually look to proven character, the experience of repaying loans, and then cash flow, or profits from the business.
Most borrowers in Cambodia do not provide quality financial statements, thus they force the banks to lend with collateral, such as land, pushing most Cambodian SMEs out of the picture.
The microfinance sector provides funding to small companies and is proving a successful utility for small businesses. The sector saw a 44 per cent increase in loans in 2013.
Investors, business angels or venture capitalists are almost non-existent in Cambodia.
There are a few investment funds looking for mature projects, but for venture capital, there are only a few initiatives in the whole country.
There has been recent growth in private equity firms setting up in Cambodia, specifically targeting both foreign and local SMEs, but there still remains a gap in the middle of the market.

Is Fintech growing in Cambodia?

With the growth and development of financial technologies in Cambodia, the Cambodia Fintech Association (CFA) was set up in 2018.
Microinsurance companies are just one of the sectors said to benefit from the technology but other key industries to benefit from digital payments in Cambodia are health and fitness, retail, entertainment, and travel.
According to a study by Visa, a third of Cambodians expect that digital payments will continue to gain popularity compared to cash, while 54% say the economy can go fully cashless within the next seven years (by 2026).
Scan to Pay or QR payment solutions are already offered by many banks in Cambodia.
Banks in Cambodia have started to roll contactless cards from 2019-2020.