Revised capital rules driving financial sector FDI growth
Cambodia to protect European patents
THE central bank’s decision last March to raise the minimum capital requirements of financial institutions in order to strengthen and stabilise the financial sector has led to an increase in foreign capital flowing into the banking sector, according to industry experts.
In its annual report released on Sunday, the National Bank of Cambodia (NBC) noted that total foreign direct investment (FDI) into lending institutions accounted for nearly a quarter of the $2.15 billion injected into the economy last year. In total, over $539 million in FDI was directed to the financial institutions, a 5 percent increase over 2015.
In Channy, president and CEO of Acleda Bank, said the increase of foreign capital pumped into the banking sector showed the extent to which financial institutions were still largely dependent on overseas partners.
“The NBC’s regulation that requires commercial banks to increase their minimum capital requirements is double the previous amount, which is a big increase for some banks,” he said.
“So they need to rely on partners from abroad to fulfil to it.”
Last March, the NBC implemented regulation that for commercial banks increases minimum capital requirements from $37.5 million to $75 million, while microfinance finance institutions (MFIs) increase from $62,500 to $1.5 million with deposit- taking MFIs seeing the largest increase, from $2.5 million to $30 million.
Financial institutions have until March of 2018 to fulfil the requirements, according to a circular published by the central bank last June.
“Because of this, I think there will be more capital flowing into the financial sector because many institutions fund these [banks and MFIs],” said Channy, projecting even further FDI growth in 2017.
He added that FDI could be expected to grow further as many banks felt pressure to hold more cash than capital and liquidity regulations demand as local deposits remained limited.
Hout Ieng Tong, president of the Cambodia Microfinance Association, said MFIs have had to increase efforts to win over foreign partners or sell larger stakes of their institutions to existing shareholders to meet the NBC’s demands.
However, he said that the majority of MFIs were already in a healthy capital position.
“I think for the top 20 to 30 MFIs don’t have many concerns to fulfil the central bank’s requirements, but they still also need funds from partners abroad,” he said.
“Nevertheless, I believe that there will be more flow of foreign capital into Cambodia’s financial institutions and it will help to strengthen our country’s economy.”
Viveka Nand Dubey, chairman of Bank of India’s Phnom Penh branch, told the Post last month that he expects banks appealing to their foreign investors for funds would have to demonstrate that they could generate an adequate return on equity to justify the additional investment.
“Whatever capital we bring in we will have to deploy it, but where?” he said.
“We’ll have to increase our loan portfolio, but if you deploy money and it is not returned you’ll not even earn a single penny.” CAMBODIA is set to become the first country in Southeast Asia to recognise and protect European patents after the Minister of Industry and Handicrafts signed an agreement with the European Patent Office (EPO) yesterday.
The agreement, expected to come into effect in July, places Cambodia among eight nonEuropean countries – including Japan, China and South Korea – that recognise European innovations. It also allows companies and individuals to obtain patent protection in up to 43 European and non-European countries with a single European patent application.
EPO president Benoît Battistelli said the new validation agreement with Cambodia was positive news for the development of the European patent system.
“It extends its attractiveness beyond the European market and its immediate neighbourhood,” he said, according to a press release.
“The recognition of the European patent by an Asian country demonstrates its global impact, also in the context of a least-developed economy.”
EPO predicts that Cambodia could benefit from further European investment due to the legal framework of the deal. While the patent agreement protects European intellectual property rights, European pharmaceuticals are exempted from the agreement as Cambodia applied its World Trade Organization waiver.
Pich Ang, director of the Intellectual Property Association of Cambodia, said that the Ministr y of Industr y and Handicrafts has been aggressively pushing to be included in patent agreements and the government considers it a key pillar for global economic inclusion.
“This shows that Cambodia wants to strengthen its protection for intellectual property,” he said. “And we see this as a positive move that could increase European investor confidence and possibly bring more European products to Cambodia.”
However, he said that with such an agreement, Cambodia has to improve on its capacity to ensure that intellectual property rights are indeed legally protected.
“We have to see how the agreement plays out and if the ministry can show it had a good reason to be in this partnership,” he said.