Cambodia joined the WTO in 2004 and has a highly open market economy. Foreign investors engaging in business activities in Cambodia are generally not subject to foreign exchange restrictions. Both the US dollar and the Cambodian riel can be freely circulated in the market, and foreign exchange can be freely transferred in and out of Cambodia. The commercial sector is primarily measured in US dollars.
Next, we will introduce the country's banking system and foreign exchange-related policies to help investors understand the basic knowledge necessary to invest in Cambodia.
The National Bank of Cambodia (NBC) is in charge of Cambodia's banking system. Foreign banks and their branches are free to register and operate in the country. There are 44 commercial banks and 14 specialized banks in Cambodia (which have established licensed microfinance institutions and 7 licensed microfinance deposit institutions for the financing of specific "turnkey projects" such as real estate development).
Before the pandemic hit in 2020, Cambodia's banking sector had experienced strong growth. In 2018, the total assets of the banking sector, including microfinance institutions, increased to 1397 trillion riel (about 34.2 billion US dollars, a year-on-year increase of 21.2 billion4%）；The personal credit business of banks and microfinance institutions grew to 817 trillion riels (about 20 billion US dollars, an increase of 243%）。Bank loans and deposits grew by 18 percent3% and 245%, and the ratio of loan-to-deposit decreased from 114% to 110%. In 2017, the non-performing loan ratio remained stable at 24%。
Cambodia** did not use capital market regulation to restrict foreign investment. Since 1995, commercial banks in Cambodia have been free to set their own interest rates. Interest rates are declining year by year due to increasing competition among banking institutions. However, in April 2017, the interest rate on loans provided by MFIs was capped at 18% per year under the enforcement measure of **, as a way to protect borrowers from excessively high interest rates.
Cambodia's financial sector is still in its infancy. Existing technologies include mobile payments,* as well as e-wallet accounts for domestic, cross-border payments.
In 2019, the Financial Action Task Force (FATF), an inter-governmental organization on anti-money laundering policy, placed Cambodia on a "grey list", noting that Cambodia has deficiencies in anti-money laundering and countering terrorist financing controls and policies. Cambodia** has pledged to work with the FATF to work together to develop an action plan to address these deficiencies, but it seems to have had little effect. If Cambodia fails to address these issues, it may be placed on the "blacklist" of the FATF, which will have a negative impact on the cost of capital for foreign investment in Cambodia and the ability of Cambodia's banking sector to access international capital markets.
Although Cambodia has its own official currency, the Riel (KHR), the U.S. dollar is widely circulated in Cambodia and is still the main currency used in most large transactions. The Cambodian exchange rate fluctuates very little on a daily basis, usually below 3%. Over the past few years, Cambodia** has taken a number of steps to promote the use of its national currency, the riel, but the Cambodian economy is still largely dollarized at the moment.
Cambodia's Foreign Exchange Law of 1997 stipulates that there are no restrictions on foreign exchange business through authorized banks, and there are no restrictions on residents setting up foreign exchange bank accounts in Cambodia. However, authorized banks are required to regularly report transfers of more than $100,000 to the competent banking authorities.
Article 11 of Cambodia's Investment Law, amended in 2003, stipulates that foreign investors can freely remit foreign exchange abroad through authorized banks to meet their investment-related financial needs and fulfill their financial obligations.
These financial obligations include:
payment of principal and interest on imports and repayment of international loans;
payment of royalties and management fees;
remittance profits; Repatriation of investment funds upon dissolution.