The global financial crisis since October of last year, also plagued Cambodia’s economy such as tourism sector, garment industry, construction sector and real estate as well as Cambodia’s commercial bank sector. Even though, Cambodia’s commercial banks cushioned from the global economic slowdown, because Cambodia’s banking sector is not strongly dependent on international loans and capital market and Cambodia has yet to establish its own stock market.

Speaking at a roundtable discussion on banks and public confidence, which was organized by the Club of Cambodian Journalists on August 26, 2009, Tal Nay Im, National Bank of Cambodia’s Director General said that the bank deposits had increased to almost 29 percent of gross domestic products (GDP) in 2008, up from 14 percent in 2000.

Tal Nay Im also said that Cambodian banking system did not directly suffer from the consequences of the financial crisis, even if Cambodia’s economy is free and open to the world.

While the growth in bank deposits gives banks more liquidity, banks will be able to make more loans to aid the economy. At the mean time, commercial banks also carefully lend loans to bank’s clients because the slow recovery of nation economy makes customers to be facing difficulty for loan repayment on times.

Due to the time of economic turmoil, Cambodians keep their money at home rather than deposit at banks.

The Cambodia Daily quoted Kang Chandararot, executive director of the Cambodian Institute of Development Study as saying that there is no guarantee that the deposits will spawn economic growth, but growth needs the confidence that the deposits represent.

“You have to establish the confidence first before the market can function,” he said, adding that “at this moment it is encouraging, not guarantee.”

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“We came to Cambodia with a long-term perspective,” the company’s chief representative, Han Kyung Tae, told VOA Khmer. “We are ready to start our business.”

Tong Yang, a financial service provider in South Korea that set up here in 2006, hopes to offer security brokerage, stock deposits, subscription and sale of securities, merger and acquisition brokerage, bond issuance and discretionary investments.

“We are right now working with a couple of state-owned companies and a couple of private companies who might be listed on the stock exchange,” Han said.

Cambodia has said it will have its exchange up and running in December 2009, despite the global downturn and with the aid of South Korea.

Han said his company had been waiting for an official license to extend its business roles, such as broker and dealer, and to establish a private equity fund.

In South Korea, Tong Yang charges from 3 percent to 5 percent of the capital it earns trading bonds or shares. Han said he was not sure what commission the company will take in Cambodia.

Stock trading partly depends on security firms or investment banks. It also requires economic stability, a system of laws and strong companies listed on the exchange.

Vietnam’s stock exchange was established with only a few companies, Han said. But a decade later, more than 400 companies were listed. After 20 years, China’s stock market lists 4,000 companies.

In Cambodia, meanwhile, securities experts have estimated around 40 companies will be listed, while their earning potential remains to be seen.

“It depends on competition, the size of business,” Han said. “If competition becomes tougher in the investment banking business in Cambodia, which has a small size of economy, we will face difficulties in pursuing profit.”

Han also warned that if smaller securities firms are approved, the bigger ones will not enter Cambodia’s market.

Sam Ganty, a member of the government’s Securities and Exchange Commission, has said that bigger investment banks have more influence than smaller ones.

They might be stronger, have more experts, and a network of potential investors, he recently told VOA Khmer.

SEC President Minh Ban Kosal said that so far 10 securities firms are waiting to apply for business licenses.

The commission will carefully select the firms with minimum capital fit to its national economy, he said, adding that firms will be able to apply for licenses starting in August.

(Original article is from Voice of Ameirca news)

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“It takes time – in the case of Vietnam, it took five years [to gather momentum],” says Hang Chuon Naron, secretary general at the Ministry of Economy and Finance, which is overseeing development of Cambodia’s first bourse.

The ministry is using the Vietnamese exchange as an influence, he adds, meeting regularly with Vietnamese State Securities Commission officials for advice.

The government has tied itself to an end-of-year launch for its bourse, leading the press to ask repeatedly whether it will be ready on time, and if it is wise to launch in the middle of an economic downturn.

Given the evolutionary nature of stock exchanges, government officials and financial analysts say the press have largely missed the point.

“There is no such thing as a right time or a wrong time,” says Sam Ghanty, a US-trained Cambodian financial expert who has worked at Canadia Bank and Foreign Trade Bank. “I agree with some concerns, [but] when is the right time?”
Foreign investors in Cambodia seem to agree that getting the ball rolling remains a priority for Cambodia’s embryonic exchange.

“People have asked if it makes sense to try to open a new stock exchange at a time when global markets are in disarray,” investment fund Leopard Capital said in its May newsletter. ”Our view is that since it will probably take a few years for the new exchange to get traction anyway, the earlier they start that process the better.”

The Korea Exchange (KRX) – which is providing technical assistance to develop the exchange, of which it will have a 45 percent stake – took decades to develop from its original form, notes Hang Chuon Naron.

The more pertinent question, analysts say, should be: “Is Cambodia ready?”
“There’s a lot of work that needs to be done,” admits Hang Chuon Naron.

For a start, construction of the four-storey, US$6 million structure planned to house the bourse won’t begin until November at the earliest, says Duk-kon Kim, vice president of the project management team at World City Co Ltd, the South Korean company that is finalising designs for the exchange at its Phnom Penh satellite town Camko City.

He adds that the building – with the exchange itself on the first floor – will not be finished until “August or September next year”. A further three months of “commissioning and testing” will also be required, he says.

So even though the joint-venture stock exchange company will be inaugurated this year, Hang Chuon Naron says trading will not kick off until the end of 2010 at the earliest.

In the meantime, creating an exchange in Cambodia – a country that has only recently familiarised itself with commercial banking – “needs a few ingredients”, Ghanty says.

While the government has passed a series of laws preparing the country for bonds and securities trading, legislation-wise there is still a way to go.

“Additional work remains to clarify, among other things, accounting, auditing, and corporate governance rules and regulations, and to establish tax benefits for listed companies,” Leopard Capital said last month.

Clean-up required
As Ghanty points out, Cambodian companies have had a tendency towards opaque bookkeeping well below international standards. He acknowledges that in many cases it will be difficult to get most companies in the Kingdom to adhere to transparent auditing and accounting practices in an economic climate that generally dictates that “I will do whatever I have to do to maximise profit”.

It has mainly been the banking sector that has abided by such standards, he adds, employing international accounting and auditing firms including KPMG and PriceWaterhouseCoopers. He predicts that these may form the second wave of exchange listings once the exchange is up and running.

With three state-owned companies tipped to list first – Electricite du Cambodge, Phnom Penh Water Supply Authority and Sihanoukville Autonomous Port, the Post understands – they must be ready to go ahead before the exchange can be launched, both in terms of accounting standards and confidence given the economic climate.

“You have to give incentives to companies to be listed,” says Hang Chuon Naron. “Why do they want capital? They want to expand.”

On the scale of the economy as a whole, KRX Project Director Inpyo Lee says the benefits include – among others – raising the stature of the Kingdom in the eyes of the international business community as an investment destination.

“It [the exchange] can bring transparency to the Cambodian economy,” he says.

But it’s not just the domestic and international private sector that matters, nor the government. For the exchange to benefit the economy, it must also engage the general population.

“You have to create a new culture,” Sam Ghanty says.

Given that any exchange takes time to gain momentum, Hang Chuon Naron is predicting that the stock exchange is unlikely to represent a primary source for raising capital in the short term.

“In the next 10 years, the Cambodian financial sector will be dominated by the banks,” he says. “It [the stock exchange] won’t be able to play a fully fledged role as a mode of finance for a number of years.”

And it’s not just answers to the questions of timing and development that the creators of Cambodia’s exchange can find in Vietnam.

Despite the slow evolution of the Ho Chi Min City exchange, by 2006 it had begun to overheat and the failure of the Vietnamese authorities to use measures to curb the boom made inevitable the slide that followed.

That’s the number one lesson Cambodia has taken from Vietnam, Hang Chuon Naron says. “Your regulator has to know when to step in,” he says. “When there is a bubble, you have to take away…incentives.”

In the short term, at least, Cambodia’s fledgling stock exchange is unlikely to require the authorities to put the brakes on.

(The original article is extracted from The Phnom Penh Post)

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Cambodia’s commercial banks were not hit hardly by the world financial crisis because Cambodian banks do not depend on the foreign loans. Cambodia does not have its stock market.

Tay Nay Im, Director General of the National Bank of Cambodia, was quoted by the Cambodia Daily as saying that “I think this is a good sign, because when banks arrive here it means that the investors have confidence”

“They bring capital to the country, which helps our business community,” said she.

“Sacombank whose signs at its new branch sit covered in red sheets, has yet the NBC before its application is approved,” said Nal Im, quoting by the Daily.

“Opening of the bank of India’s first branch in the country was a positive sign at a time when most people are painting a gloomy,” said Saurey Ray, first secretary at the Indian embassy in Phnom Penh, reported newspapers.

“Many banks are coming at the moment, from Vietnamese banks to Korean banks. We are very thankful to the National Bank of Cambodia for all their help,” said Ray, adding that the opening of the branch is aimed at increasing India’s investments in Cambodia and, depending on its success, the bank will definitely be opening more branches.”

In an effort to tighten and strengthen the banking sector, the National Bank of Cambodia (NBC) has tripled the minimum capital requirement for commercial banks in Cambodia. Commercial banks reserves were raised from 50 billion riel (US$13 million) to 150 billion riel (US$36.5 million), and specialized banks reserves from 10 billion riel (US$2.5 million) to 30 billion riel (US$7.5 million).

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The subdecree was drafted by the Ministry of Economy and Finance in accordance with the Law on the Issuance and Trading of Non-Government Securities, which was passed by the National Assembly in October 2007.

The objective of that law, according to the website of the Securities and Exchange Commission of Cambodia (SECC), is to outline regulations for the exchange as well as for “operators in the securities markets who trade or provide financial services”, including “public limited companies or registered legal entities that issue securities”.

The subdecree details procedures related to the management and control of securities in Cambodia in line with the International Organisation of Securities Commissions, an organisation of securities and futures markets regulators, according to a Council of Ministers press release issued Friday. The release states that the procedures are designed to ensure that the exchange operates “fairly, effectively, transparently and orderly”.

SECC Director General Ming Bankosal said the approval of the subdecree would allow for the implementation of the October 2007 law.

“Only with this subdecree can we issue regulations to control this sector,” he said Sunday. “The subdecree will allow the SECC to authorise the establishment of the stock exchange and the listing of companies on the stock exchange. If there is no subdecree, everything will be bogged down and would not go forward.”

“Now that the subdecree has been approved, the SECC will prepare regulations such as a relevant prakas to inform companies about requirements to list on the stock market,” he said.

The project director for the Korea Exchange (KRX) in Phnom Penh – the organisation working with the Cambodian government to establish Cambodia’s exchange – said that the subdecree was an important step towards implementing the initiative, which was scheduled to be launched by the end of the year.

“This is critical for Cambodia’s financial markets … a bond market will do a lot to help companies to raise capital,” said Inpyo Lee. He added that state-owned enterprises are hoping to float bonds on the new market.

The SECC, to be chaired by Minister of Finance Keat Chhon, is scheduled to launch officially on April 29.

(Original article is extracted from The Phnom Penh Post)

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The agreement, to be signed by KRX chairman and CEO Lee Jung-hwan and Finance Minister Keat Chhon, sets out requirements for both parties and contains penalty clauses, although Inpyo Lee declined to say what they were. He also refused to list the requirements, but said that the capital contribution was a key one.

He added that the exchange was on track for a December launch, provided the three state companies slated to be listed prior to opening complete preparations on time.

Some observers have warned that the timing of the initiative could create problems as Cambodia faces reduced economic growth, increased unemployment and the threat of increased nonperforming loans.

“I think that currently, the environment is not good enough to proceed with the stock market in Cambodia,” said economist Kang Chandararot, president of the Cambodia Institute for Development Study.

He said that to rush prematurely into establishing an exchange risked losing investor confidence “because the risks will be higher for participants”.

Nguon Meng Tech, director general of the Cambodia Chamber of Commerce, urged the government to postpone launching the exchange until 2012, saying that not enough Cambodian investors understood how a bourse works.

“Most Cambodian business old hands have little knowledge about a stock exchange. So, how can they throw money at it?” he said.

Keat Chhon acknowledged Thursday that while the government “cannot set an official date for the establishment of the stock market. We will put our efforts into achieving a [December] target”.

“The global financial crisis, of course, impacts the stock market,” he said. “But we won’t abandon our plans to establish an exchange due to the crisis.”

Lee said he expected institutional investors and foreigners to be the main source of liquidity in the early stages of the exchange. Investment and retail banks had expressed interest as institutional investors ,he said, although there had been no formal agreements signed.

He confirmed the exchange would initially use the US dollar but could also introduce riels at a later date depending on demand.

Foreigners would be able to invest in the exchange and foreign companies would be able to list, he said.

Lee also said the launch would not be affected by the global downturn, as he anticipated it would be “three or four years” until the exchange was operating at full capacity, by which stage the financial crisis would likely be over.

He anticipated that about 30 companies would be listed by the time the exchange was operating “normally”.

KRX, the world’s No 3 derivatives exchange, became the sole bourse operator in South Korea in 2005 after it absorbed the Korea Futures Exchange and the junior Kosdaq market.

(The original article is extracted from The Phnom Penh Post)

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Korea Exchange (KRX) Chairman and CEO Lee Jung-hwan put off  the scheduled signing ceremony with the Cambodian government because of a back injury sustained last week, said KRX project manager Inpyo Lee. He said the agreement would be delayed until the CEO recovered and was fit to travel, but said no date had been set.

In the absence of the CEO, KRX representatives and Finance Minister Keat Chhon oversaw the launch of a computer training system aimed at teaching participants how to place bid and offer orders on the exchange, as well as how to conduct daily exchange and securities firm business.

The US$10,000 program, which was specially designed for Cambodia, aims to promote awareness of the exchange, Inpyo Lee said. He added he expected the exchange to launch by December.

However, the global economic crisis and the abysmal performance of exchanges in the Southeast Asian region over the past year have led to mixed messages from government officials on the timing of the bourse’s launch, which was originally set for September 9, 2009.

The finance minister said Thursday there is “no change in our program for the stock exchange … the global financial crisis has delayed the launch. We have to take into account the warnings of our prime minister.”

The exchange will only use riels, he said, contrary to Inpyo Lee’s statement last week that it would start operations in dollars with riels possibly introduced later.

Prime Minister Hun Sen raised the issue of the stock exchange launch at the Business Roundtable in Siem Reap this week saying that the absence of an exchange in Cambodia had helped the country escape the worst effect of the global economic crisis.

“If it is born just to die, we shouldn’t let it be established at this time,” he said.

The finance minister said that three Cambodian companies will be listed on the exchange when it launches this year, but would not confirm which companies they would be.

(The original article is extracted from Th Phnom Penh Post)

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