The National Bank of Cambodia (NBC) has the exclusive responsibility for the licensing and supervision of banks and financial institutions. The principal financial institutions include Commercial Banks, Specialized Banks and Micro-Finance Institutions (MFI). The NBC also licenses and/or regulates Rural Credit Operators, Informal Money Lenders, Financial Leasing Companies, Money Changers, Third Party Processors, and the business of import and export of precious metals and stones.
Regulated banking operations include: (i) credit operations to the public for valuable consideration, including leasing, guarantees and commitments under signature; (ii) the collection of non‑earmarked deposits from the public; and (iii) the provision of means of payment to customers and the processing of said means of payment in national currency or foreign exchange. Any entity carrying out even one of these three types of activities shall be considered de facto to be engaged in banking and must be licensed by the NBC.
Commercial banks may engage in all banking operations.
Specialized banks are defined as a licensed financial institution that engages in any one of the three banking operations. To date, specialized banks may not accept non-earmarked deposits from the public.
MFIs may engage in banking operations as permitted by their license, which with the permission of the NBC may include the taking of deposits.
Banks may outsource, subject to approval of the NBC, certain of their services to third party processors. Third party processor licenses may permit the service of money remittance by mobile phone or other means.
- Are foreign-owned banks allowed?
There is no nationality restriction on shareholding. There is no local equity requirement. Foreign-owned banks are permitted, either incorporated locally or as a branch. A foreign bank may also open an information, liaison or representative office, but these offices are not entitled to carry out banking operations. There are no nationality restrictions on directors.
- Can money be freely and reliably transferred into and out of the country?
The Foreign Exchange Law of 2007 places no restrictions on the transfer of funds to or from Cambodia, provided that the transfers are made through an “authorized intermediary,” i.e. a bank that is permanently established in Cambodia. However, Cambodian financial institutions are subject to the provisions of Anti-Money Laundering laws and banking regulations which require compliance structures and reporting to the NBC.
- What is required to establish a bank/financial institution? What licenses and other government approvals are required?
An application for the relevant license must be made to the NBC. If the NBC finds the applicant to be qualified, the NBC will issue an “in principle” approval. This “in principle” approval will state the conditions the applicant must comply with in order to be granted a license. Only when the conditions are complied with will the NBC issue the operating license.
In issuing a banking license, the NBC examines the qualifications of the applicant, including its shareholders, management board, capital and financial position, and the adequacy of its human, technical, and financial resources.
The NBC considers the applicant’s “influential shareholders”. An influential shareholder is one who directly or indirectly holds at least 20% of the share capital or voting rights of the applicant. Influential shareholders may be ordered by the NBC to increase the bank’s net worth if the banks solvency standards are not met.
A commercial bank, with at least one influential shareholder that is a bank or financial institution with an “investment grade” rating issued by a reputable rating agency, has a minimum capital requirement of US$ 12.5 million. Otherwise the minimum capital requirement is US$ 37.5 million.
A specialized bank, with at least one influential shareholder that is a bank or financial institution with an “investment grade” rating issued by a reputable rating agency, has a minimum capital requirement of US$ 2.5 million. Otherwise the minimum capital requirement is US$ 7.5 million.
A MFI that only offers credit facilities has a minimum capital requirement of US$ 62,500. A MFI licensed for credit and savings mobilization must have a minimum capital of US$ 2.5 million.
- What is required to transfer shares in a bank or financial institution?
As a practical matter, the prior approval of the NBC for any change in shareholding is required. Upon the approval of the NBC, the Articles of Incorporation showing the new shareholding structure will be submitted to the Ministry of Commerce for registration. Upon registration at the Ministry of Commerce, the new shareholding structure will be in effect.
- Can a bank or financial institution hold shares in other companies?
A financial institution can hold shares in other companies, but there are limits regarding the amount of funds it can use, depending on the type of industry. In addition, certain types of equity participation require prior approval from the NBC.
- Are loans given to or received by a bank or financial institution subject to approval, filing or notification? Who (lender or borrower) will be required to obtain such approval, filing or notification, if any?
No prior approval is required for banks or financial institutions to accept loans. But all sources of banks’ funds, including loans received from lending institutions, must be included in monthly reports to the NBC. In January 2014, the General Department of Taxation issued instructions regarding the registration of loans. Loans not registered by a borrower enterprise within thirty (30) days of the loan transaction may subject the lent amount to being treated as income at a tax rate of 20% (twenty percent).
- Are there restrictions on the interest rate of loans provided by and/or received by a bank/financial institution?
The Civil Code provides that the interest rate shall be 5% (five percent) per annum unless otherwise agreed between the parties. However the agreed interest rate may not exceed the legal maximum, which is 18% (eighteen percent) per annum according to a regulation published by the Ministry of Justice of the Kingdom of Cambodia. If the agreed interest rate exceeds the maximum interest rate, the borrower will be only obligated to pay the maximum interest rate. Customers must be provided with clear information with respect to interest rates, charges, and changes thereto. The NBC has issued regulations mandating transparency with respect to banks grating credit facilities to customers.
- Are there foreign exchange restrictions on the enforcement of a loan? Can a loan be disbursed and reimbursed in U.S. dollars?
Cambodian Riel are the official tender in Cambodia and must be accepted, if tendered. However, the Civil Code specifically provides that the “obligor may make payment in any desired currency” and that “if the amount of an obligation is established in a foreign currency, the obligor may make payment in Cambodian currency based on the foreign exchange rate at the place where the obligation is performed when it becomes due”.
- Is a loan agreement between a foreign lender and a Cambodian borrower subject to any tax in Cambodia?
There is tax on the interest paid by a borrower in respect of a loan between an offshore lender and a Cambodian borrower. The borrower, as a resident taxpayer, is required to withhold 14% (fourteen percent) of the interest to be paid to the offshore lender.
- How can a loan be secured generally? Can a security interest be registered?
Cambodia law provides a lender with a comprehensive scheme of secured financing. Generally speaking a loan may be secured using immoveable or moveable property as collateral. Moveable property generally includes intangible property such as contract rights, insurance proceeds, etc.
Security interest over immoveable property may be taken by way of hypothec or pledge. Generally speaking hypothecs are better security devices than pledges. The Civil Code recognizes two types of hypothecs: hypothecs and revolving hypothecs. Both types permit a security interest over land and things attached to the land. Hypothecs may be also be taken over perpetual leases (i.e., a lease with a term of fifteen (15) years or longer and usufructs. Hypothecs may be perfected by registration with the relevant Cadastral Administration office of the Ministry of Land, Urban Planning and Construction.
Security interest over moveable property (including intangible property) may be taken under either the Secured Transactions Law or the Civil Code. General speaking a security interest under the Secured Transactions Law provides more protection to a lender. Depending on the nature of the collateral, a security interest in moveable property may be perfected by registration at the Secured Transaction Filling Office or by possession or both.
- How is a security document enforced when the borrower of a loan is in default?
In case of default, and if the defaulting debtor is not cooperative, it will be necessary to resort to Cambodian Courts for enforcement.
Offshore arbitration decisions should be recognized and enforced by Cambodian Courts. Cambodia is a signatory to the New York Convention of 1958. Cambodia has a law specifically implementing the New York Convention of 1958.
Offshore judicial decisions should not, under present law, be regarded as enforceable in Cambodia, in that Cambodia’s Civil Procedure Code requires a guarantee of reciprocity between Cambodia and the foreign country in which the court is based. At present, we are not aware of any treaty or similar agreement dealing with reciprocity.
Cambodia does have a Law on Insolvency that recognizes the (perfected) priority rights of secured creditors.
- Does the Cambodian Banking System comply with FACTA?
FATCA is the United States’ Foreign Account Tax Compliance Act.
Cambodia has formally notified the United States that it consents to the inclusion of the Kingdom of Cambodia on the list of jurisdictions, which is maintained by the U.S. Department of the Treasury and the U.S. Internal Revenue Service, to be treated as if they have a FATCA intergovernmental agreement in effect.
Cambodia, on 30 June 2014, advised the United States that the Royal Government of Cambodia intends to take the steps necessary, including by working with the United States as necessary, to finalize and sign by 31 December 2014, an Agreement Between the Government of the United States of America and the Royal Government of Cambodia to Improve International Tax Compliance and to Implement FATCA. Cambodia is intending to proceed with Model 1B agreement, including its Annexes.
- Does Cambodia have legal provisions dealing with Anti-Money Laundering?
Cambodia is strengthening its legal efforts against money laundering and the financing of terrorism (“AML/CFT”) , and in 2013 issued a five year plan (2013 to 2017) aimed at implementing AML/CFT effectively and bringing Cambodia into compliance with international standards.
Under the Criminal Code, “Money laundering” is the “false justification of the origin of the direct or indirect proceeds of a felony or misdemeanor”“and includes “assistance in investing, concealing or converting the direct or indirect proceeds of a felony or misdemeanor.”
Under the Law on Anti-Money Laundering and Combating the Financing of Terrorism (2007):
- Money laundering is the conversion or transfer of property, knowing that such property is the proceeds of an offence, for the purpose of concealing or disguising the illicit origin of the property or of helping any person who is involved in the commission of the offence to evade the legal consequences of his or her action; and
- “Suspicious transaction” shall mean a transaction that involves funds suspected to be the proceeds of an offense, or funds related to the financing of terrorism.
Cambodian financial institutions and certain reporting entities are required to establish and implement anti-money laundering policies and to report suspected money laundering activities and suspicious activities. Key laws include:
- Law on Anti-Money Laundering and Combating the Financing of Terrorism (2007)
- Sub-Decree on Financial Intelligence Unit Establishment (2008)
- Sub-Decree on the Establishment of National Coordination Committee on Anti-Money Laundering and Combating the Financing of Terrorism (2012)
- Sub-Decree on Freezing of Property of Designated Terrorist and Organizations (2014)
- Prakas on Anti-Money Laundering and Combating the Financing of Terrorism (2008)
- Prakas on Anti-Money Laundering and Combating the Financing of Terrorism Relating to All Reporting Entities not Regulated by the National Bank of Cambodia (2010)
- Prakas on Structures, Duties and Functions of the Cambodia Financial Intelligence Unit (2009)
Reporting entities include (a) financial institutions; (b) non‑bank financial institutions (e.g., securities and insurance); (c) investment / pension funds; (d) real estate agents; (e) post office; (f) lawyers / accountants / asset managers; (g) casinos; (h) NGOs engaged in business and fund raising; (i) trust companies; and (j) any institution designated by Cambodian Financial Intelligence Unit.
Under the regulations, there are sixty six (66) activities that are specifically noted as “suspicious”.