IMF warns action needed on Cambodia's banks, economy must diversify

Wed, 09 Dec 2009
DPA

Phnom Penh - The International Monetary Fund said Cambodia must undertake "critical actions" to strengthen its battered banking system, including better supervision by the central bank and faster implementation of measures to boost banks' minimum capital requirements. In a report released late Tuesday following a September visit by an IMF team, the fund's directors said problems inherent in Cambodia's banking sector had been exacerbated by the global economic crisis which had hit the overinflated property market.

Among those problems were inadequate supervision by the authorities, weak risk management by banks when assessing creditworthiness, and excessive credit growth.

The IMF said in its accompanying staff report that "the authorities should strictly enforce corrective actions plans and urge banks to bring forward compliance with new minimum capital requirements ahead of the end-2010 deadline."

But the fund said that its stress on rapid implementation of some banking reforms is not shared by the government.

It also said the central bank must recruit more staff to ensure it can properly monitor the country's banks.

Officials from the Ministry of Economy and Finance and the National Bank of Cambodia were unavailable for comment.

Looking at the broader Cambodian economy, the IMF noted that average annual growth of 8 per cent over the past decade had helped cut the poverty rate from half of the population in the 1990s to around one third today.

The IMF maintained its previously reported estimate that the economy would shrink 2.75 per cent this year and experience modest growth of 4.25 per cent in 2010, although it made it clear that growth next year remains uncertain.

The fund again called on the government to diversify its growth base away from the four pillars of agriculture, garment manufacturing, tourism and construction. The last three, which contributed the bulk of the past decade's economic growth, have been hit hard by the global economic crisis.