Nbc Raises Capital Requirements for Kingdom's Banks

Cambodia's central bank has raised the minimum capital requirement of banking institutions operating in the Kingdom, doubling the capital threshold for commercial and specialised banks, and increasing it more than ten-fold for microfinance institutions - a move some analysts predict will likely lead to more consolidation in the sector.

A prakas by the National Bank of Cambodia (NBC) published yesterday requires all commercial banks, including subsidiaries of foreign banks, to increase their minimum capital to the equivalent of $75 million.

Previously, commercial banks were required to hold a minimum capital of $37.5 million, while subsidiaries of foreign banks with an investment-grade ranking required just $12.5 million capital.

Specialised banks are required to raise their minimum capital to $15 million, from $7.5 million.

The increases are even more substantial for microfinance institutions (MFIs), with deposit-taking MFIs required to increase their minimum capital to $30 million, up from $2.5 million.

MFIs not licensed to receive deposits must raise their capital to $1.5 million, nearly 25 times greater than the previous level of $62,500. Banking and financial institutions will have two years to meet the new capital requirements, the prakas dated March 22 said, without listing consequences for non-compliance.

Minimum capital requirements for banking institutions.

NBC general-director Chea Serey said the decision to increase the minimum capital requirement was a prudential measure aimed at ensuring that banks operate safely and securely, while maintaining financial stability. She said it was important to strengthen the banking sector while it was healthy ahead of any possible downturn.

You don't start an insurance policy when you are already sick. No one will insure you, she said.

While bankers and analysts welcomed the long-anticipated measure, some argued it could prove challenging for dozens of smaller-capitalised banks and MFIs. By one estimate, nearly a third of all commercial banks and a quarter of micro-lenders could struggle to meet the new threshold requirement by the deadline.

In Channy, president and group managing director of Acleda Bank, said this was the third time the NBC had raised the minimum capital requirement of commercial banks. The first was in 1999, when the central bank increased it from $5 million to $13 million, and it was increased again in 2008 to $37.5 million.

He said the incremental changes reflected the...