Cambodia's Financial Environment

The Highlights of the Week 2024/01/22 - 01/26

1.    SERC approves new reporting guidelines
The Securities Exchange and Securities Regulation Commission (SERC) of Cambodia has officially approved the adoption of the "Fund Management Company (FMC) Reporting Form Guidelines," aiming to enhance the performance and stability of the industry. The regulatory body notified FMC that the reporting format regulations were approved on January 23. This step is designed to increase awareness and ensure compliance with reporting, notification, and licensing obligations in a structured and efficient manner. Socheat, the Director of SERC, emphasized the crucial importance of all FMCs adhering to these regulations for effective management and reduction of business risks. He stated, "This is the reporting system we have established for them to implement correctly according to existing rules and regulations. Our main goal is to monitor and supervise their business performance and activities. If we detect any anomalies, we can intervene immediately to avoid any risks."

Fund companies, following the regulations of authorities such as SERC, will be required to regularly disclose the financial condition of the company, as well as the profit and loss and net asset value of the issued funds, including information on subscriptions and redemptions. The purpose of this measure is to help regulatory authorities detect issues early and safeguard the rights of fund investors. With all regulations expected to become more refined, it is anticipated that the wealth management market, including funds, will gradually move towards normalization.

2.    Cambodia’s Trust sector attracts $1.27B, on fast growth since 2021
Cambodia's relatively new trust market is experiencing rapid growth, having attracted investments worth $1.27 billion since 2021, according to Sok Dara, the Director of the Trust Supervision Authority. As of now, the regulatory body has issued licenses to 10 trust companies, approved 15 commercial banks to provide custody services, and authorized 13 assessment companies to offer asset valuation services. Sok Dara highlighted the significant role of the trust sector in promoting investment, diversification, crisis management, and driving digitization in the financial sector, as emphasized in the recently launched first phase of the Royal Government's Pentagonal Strategy.

Trusts are legally defined as a legitimate three-party relationship, where the first party (the settlor or grantor) transfers their property or assets to the second party (referred to as the trustee/trust company), a qualified and approved entity (not a third party), for the management, administration, and safekeeping for the benefit of the third party (referred to as the beneficiary). The Director stated that the Cambodian trust market provides investors with certainty, security, and flexibility. "It offers security and certainty as it is well-regulated by law. It also provides flexibility for investors to transfer and manage their assets."

Since foreign entities cannot directly hold Cambodian land and real estate, the trust mechanism serves as the sole legal channel for obtaining such assets. Since the establishment of the Trust Regulator (TR) in 2021, the number of registered trusts has reached 810, with an amount totaling $1.27 billion. It is expected that future funds raised by Collective Investment Schemes (CIS) will also need to be held by trust companies on behalf of investors. With continued growth in foreign investment, the amount is projected to reach new highs each year.

3.    Cambodia’s banking and financial industry healthy, says NBC
The National Bank of Cambodia (NBC) affirms the robust development of Cambodia's banking and financial industry, despite uncertainties in global economic growth leading to bank failures in some countries. Chea Serey, the Governor of the National Bank of Cambodia, stated at Thursday's annual meeting that the Cambodian banking system continues to strengthen its role in promoting economic activities and maintaining financial stability. She added that in challenging situations, Cambodia takes pride in the stability of its banking system, contrasting with instances of bank institution collapses in countries like the United States and Switzerland, contributing to global concerns about financial stability.

Overall, the Cambodian banking system remains flexible and has achieved significant results, making a substantial contribution to macroeconomic stability and supporting economic growth. Currently, there are 59 commercial banks, 9 specialized banks, and 86 microfinance institutions nationwide, with a total of 2614 branches and offices and 3998 ATMs. By 2023, Cambodia's international reserves are expected to reach $20 billion, with an annual growth rate of 12.3%, ensuring imports of essential goods and services within seven months in emergency situations. Credit growth continues to play a vital role in supporting manufacturing, with double-digit growth in sectors such as manufacturing and agriculture. There is increased focus on bank inspections, regular stress tests, and thorough monitoring of non-performing loans, requiring banks and financial institutions to be more cautious in addressing liquidity risks. The stability of the banking and financial sector will provide significant assurance for the safety of Aegies' money market funds.