FOREWORD Along with the economic recovery of advanced economies and emerging market economies, Cambodia still maintained the economic growth rate with an average of 6.9 percent in 2017. The growth momentum is projected to be at this similar level in the medium term. The key sectors that play crucial roles in supporting the economy are tourism, garments, construction, and agriculture, which had better performance relatively to previous year, and the export of other industrial products has also contributed to this growth. Such achievement cannot be attained without three main factors such as peace and political stability, investment and tourism policies, and macroeconomic stability, which are in line with the Royal Government’s Rectangular Strategy Phase III under the wise leadership of Samdech Akka Moha Sena Padei Techo HUN SEN Prime Minister of the Kingdom of Cambodia. The economic improvement and the financial stability have motivated local and international investors to expand their business in the banking sector, which is strong and inclusive. This circumstance pushes the banking sector to play a more crucial role in the economy through providing more efficient and broader financial services. The National Bank of Cambodia (NBC), as the supervisory authority, has continuously focused on the effectiveness of supervision and the robustness of the banking system to be in consistent with the current development of the banking industry and the reform of the international supervision standards. In addition to the rule-based, risk-based, and forward-looking supervision, the NBC also pays attention in enhancing regulations through issuing Prakas on Liquidity Coverage Ratio and several other Prakas in accordance with the Basel Principles. As well, the NBC issued a new regulation to set the interest rate ceiling at the rate of 18% applying on loan from micro-finance institutions and rural credit operators in order to alleviate farmers and small and medium enterprise (SMEs) to access financial sources with lower cost, and the NBC has cooperated with the Ministry of Education, Youth and Sport (MoEYS) to include financial literacy in the general education curriculum. At the same time, the NBC has continually developed Payment systems based on high technology such as Fast Payment System (FAST), which allows customers to instantly obtain transferred funds in response to the liquidity needs, and Cambodian Shared Switch (CSS), which is a central processing platform for facilitating the interbank transactions through the use of debit cards with ATM and POST machines. These developments have been made to enhance the effectiveness of payment services, to promote financial inclusion, and to reduce cash transactions in the market. In the meantime, the NBC is studying the feasibility of Real Time Gross Settlement (RTGS). Furthermore, the NBC has -i- focused on supervisors’ capacity building in both practice and theories in order to impose proper and timely mechanism for correcting and preventing risks in each individual institution and the banking system as a whole. In order to implement the Cambodian International Financial Reporting Standards, the NBC amended certain regulations related to loan classification and provisioning on impairment. At the same time, in support of the development of credit information sharing system of the Credit Bureau (Cambodia) Co., Ltd., the NBC issued a notification to banking and financial institution to provide of company loans’ data for testing whether the members can upload and download the company loans’ data in addition to individual loans or not. In order to enhance the financial knowledge, the NBC has paid attention in integrating financial knowledge into the general educational curriculum in accordance with the reform plan of the Ministry of Education, Youth, and Sport. The NBC has paid more attention in consumer protection through establishing a consumer protection working group and hotline system. In terms of promoting financial inclusion, the NBC organized workshops to raise public awareness about microfinance sector at Kampong Cham and Kandal provinces. The NBC cooperated with the Asia-Pacific regional office of the International Monetary Fund to organize a regional workshop about financial inclusion by illustrating the relationship between macroeconomic policy and financial inclusion. In accordance with the Financial Sector Development Strategy 2016-2025, the NBC is studying about the law and regulation framework related to the establishment of a deposit insurance system based on pay box plus mandate. I do hope this annual report can be used to raise more understandings for researchers as well as to provide information to banking and financial institutions for measuring the outcome and the effectiveness of their work's implementation accordingly. Phnom Penh, 20 April, 2018 CHEA CHANTO Governor National Bank of Cambodia -ii- CONTENTS Foreword .................................................................................................................................. i List of Figures and Tables ....................................................................................................... v 1. Major Development of Banking Sector .......................................................................... 1 1.1. Overview of Banking and Financial Institutions ...................................................... 1 1.2. Financial Position and Performance ......................................................................... 3 1.2.1. Banking Sector’s Performance ............................................................................ 3 1.2.2. Microfinance Sector’s Performance .................................................................. 5 1.2.3. Financial Leasing Sector’s Performance ........................................................... 7 1.2.4. Money Changers’ Performance ......................................................................... 8 1.2.5. The Progress of Registration of the Rural Credit Institutions ............................ 8 2. The Development in Supervisory and Regulatory Frameworks ................................... 8 2.1. The Review and Issuance of Banking Regulations ................................................... 8 2.1.1 Labelling the display of the term “Private Institution” to the Public ............... 9 2.1.2 Request for Banking and Financial Institutions and Rural Credit Operators to Change their Logos ......................................................................................... 10 2.1.3 Interest Rate Ceiling on Loan ............................................................................. 10 2.1.4 Resolution of Consumer Complaints of Banks and Financial Institutions .... 10 2.1.5 Conditions for Banking and Financial Institutions Applying to be listed on the Cambodia Securities Exchange (CSX) ...................................................... 11 2.1.6 Liquidity Risk Management Framework for Banking and Financial Institutions .... 11 2.1.7 Granting Certificate of Rural Credit Institutions ............................................... 12 2.1.8 External Audit of Banks and Financial Institutions ........................................... 12 2.1.9 Credit Risk Grading and Impairment Provisioning .......................................... 13 2.2. Supervisory Activities .................................................................................................. 13 3. Promoting Financial Sector Development and Regional Integration………………. 14 3.1 The Development of Financial Infrastructure ........................................................ 14 3.1.1 Accounting and Financial Reporting Standards ............................................ 14 3.1.2 Credit Bureau Cambodia ................................................................................... 14 3.1.3 Payment System ................................................................................................... 15 3.2 Financial Inclusion ....................................................................................................... 16 3.3 Financial Literacy and Consumer Protection ........................................................ 17 -iii- 3.4 Interbank Market Development .............................................................................. 18 3.5 Financing to Real Estate Sector ............................................................................... 18 3.6 Deposit Protection Scheme ...................................................................................... 21 4 . Capacity Building on Supervision and International Cooperation ............................ 22 4.1 Capacity Building for Bank Supervisors ................................................................... 22 4.2 International Cooperation ........................................................................................ 22 List of Appendixes ............................................................................................................... 24 -iv- List of Figures and Tables FIGURES Figure 1: Structure of Banking System in Cambodia ............................................................. 1 Figure 2: Banks-Number of Borrowers and Depositors ......................................................... 4 Figure 3: Banks-Loans and Deposits to Customers ............................................................... 4 Figure 4: Banks-Credit Classified by Economic Sectors ....................................................... 5 Figure