1

University of Barcelona

MASTER IN INTERNATIONAL ECONOMIC LAW AND POLICY

2008-2009

FINAL RESEARCH PAPER

Title: “Trade Liberalization in Financial Sector: Experience from Cambodia”

Author: Vutha HING

Supervisor: Prof. Pierre Sauve

Barcelona, 01 November 2009

2

Table of Contents

SUMMARY ............................................................................................................................................................ 4

CHAPTER ONE: INTRODUCTION .................................................................................................................. 5

1.1. BACKGROUND .............................................................................................................................................. 5 1.2. RESEARCH OBJECTIVES AND APPROACH ...................................................................................................... 7 1.3. ORGANIZATION OF REPORT .......................................................................................................................... 7

CHAPTER TWO: LITERATURE REVIEW--CONCEPT AND BENEFITS OF TRADE

LIBERALIZATION IN FINANCIAL SERVICES ............................................................................................ 8

2.1. THE CONCEPT OF TRADE LIBERALIZATION IN FINANCIAL SERVICES .............................................................. 8 2.2. GAINS FROM TRADE LIBERALIZATION IN FINANCIAL SERVICES ................................................................... 10

2.2.1. Trade liberalization in financial services and economic growth ....................................................... 10 2.2.2. Trade liberalization in financial services and financial sector development ..................................... 11

2.3. INDICATORS USED FOR ASSESSMENT OF FINANCIAL SECTOR PERFORMANCE IN CAMBODIA ...................... 13

CHAPTER THREE: FINANCIAL SERVICES LIBERALIZATION IN GATS--EXPERIENCE FROM

CAMBODIA ........................................................................................................................................................ 14

3.1. OVERVIEW OF GENERAL AGREEMENT ON TRADE IN SERVICES .................................................................. 14 3.2. FINANCIAL SERVICES LIBERALIZATION IN GATS ....................................................................................... 17

3.2.1. Historical Development of Financial Service Negotiations ............................................................... 17 3.2.2. The Status of Current Commitment in Financial Services ................................................................. 18

3.3. OVERVIEW OF FINANCIAL SECTOR LIBERALIZATION IN CAMBODIA ........................................................... 19 3.4. CAMBODIA’S FINANCIAL SERVICE SCHEDULE IN GATS ............................................................................ 21

CHAPTER FOUR: ASSESSMENT OF FINANCIAL SECTOR PERFORMANCE IN CAMBODIA ...... 23

4.1. DEPTH AND OUTREACH OF FINANCIAL SYSTEM ......................................................................................... 23 4.2. COMPETITION IN FINANCIAL SECTOR ......................................................................................................... 25 4.3. EFFICIENCY IN FINANCIAL SECTOR............................................................................................................. 27

CHAPTER FIVE: CONCLUSION .................................................................................................................... 30

BIBLIOGRAPHY: .............................................................................................................................................. 33

ANNEXES: .......................................................................................................................................................... 36

3

Abbreviations and Acronyms

ASEAN Association of South East Asian Nations

ATM Automated Telling Machine

GATS General Agreement on Trade in Services

GATT General Agreement on Trade and Tariff

GDP Gross Domestic Product

HI Herfindahl Index

MFN Most Favored Nation

NAFTA North American Free Trade Agreement

NT National Treatment

OECD Organization for Economic Cooperation and Development

ROAA Return on Average Assets

ROAE Return on Average Equity

ROE Return on Equity

TRI Trade Restrictiveness Index

USD United States Dollar

WTO World Trade Organization

4

Summary

This study examines the degree of liberalization in Cambodia’s financial services and its

contribution to overall sector performance. It uses literature review and secondary data

analysis to evaluate financial development focusing on three broad indicators of sector-wide

performance: breadth and outreach of the financial system, competition and efficiency.

A great deal of literatures provide empirical evidences supporting theoretical prediction that

financial service opening can help build more robust and efficient financial systems through

various channels: by facilitating capital inflows, improving quality, innovation and efficiency,

increasing competition, introducing international practices, and intensifying pressure on

government to enhance the legal, regulatory and supervisory systems. This resulted in

increasing number of countries adopted more liberal financial trade policy, unilaterally and

multilaterally, as a tool to achieve financial sector development and to stimulate economic

growth.

Cambodia witnesses similar experience like many countries cited in international literatures.

Quantitative indicator measuring trade restrictiveness in financial services suggests that

Cambodia’s financial sector has extremely low restrictions in aspects of market access and

national treatment. The process of its financial sector openness is driven in large extent by

liberal outward-looking economic policy and financial sector reforms that were undertaken

since 1990s. Cambodia’s economic policy is on the verge of deeper economic integration

within various frameworks, bilateral, regional and multilateral, and such tendency is likely to

hasten the process of financial sector opening.

Analysis also suggests hat trade liberalization of financial services especially under GATS

framework has played some role in strengthening Cambodia’s financial system. Not only do

depth and outreach of financial system widen, but also competition and efficiency improve

significantly. Number of banks and their branch offices boomed over the last few years along

with substantial increase in competition and efficiency. The challenges for Cambodia is to

implement domestic financial reforms especially in the areas of regulatory frameworks,

institutional and supervisory capacity and financial infrastructure in order to create sufficient

prerequisite conditions for further financial sector market opening. If these two policies are

mutually reinforcing, Cambodia’s financial sector liberalization would contribute even greater

to financial sector development.

5

Chapter One: Introduction

1.1. Background

Cambodia’s financial sector has witnessed gradual transformation toward a more liberal to

international financial transaction and foreign competition over the last decade. Quantitative

indicators show that there is extremely low restriction against foreign participation in both

banking and insurance; while there is no discrimination among foreign and domestic financial

service suppliers. In the mean time, enormous regulations have been introduced in accompany

of sector opening process. These developments are in large part driven by changes in trade

policy from protectionism under central-planning economic system to liberal and outward-

looking policy under the frameworks of regional and global economic integration.

Cambodia’s financial trade policy at present is bound by its obligation under the General

Agreement on Trade in Services (GATS) of the World Trade organization (WTO). According

to specific commitment schedule, Cambodia has made substantial commitments in GATS in

terms of market access and national treatment and this will shed light on the development of

financial sector.

The progressive financial sector opening has been accompanied by notable development in

financial services. The sector used to have very low demands and low public confidence,

limited financial intermediation, and weak financial infrastructure. These shortcomings have

experienced significant improvement in recent years. During the period of 2005-2007, for

example, the total assets in banking sector grew from US$1.4 billion in 2005 to US$3.5

billion in 2007, while the volume of loans and deposits rose at rapid pace at 75 per cent and

77 per cent, respectively. Loan to deposit ratio gradually improved to reach 69 per cent in

2007. The insurance sector also has similar pattern of growth. In 2007, gross premiums

increased by 44 per cent compared to 12 per cent in 2006. The number of insurers rose from

four in 2006 to seven in 2007 with 29,124 total policies.

A great deal of literatures on financial service liberalization draw similar conclusion that

financial service opening help build more robust and efficient financial systems. Opening to

foreign financial suppliers induces more pro-market competition, stimulate innovation though

the dissemination of new technologies, know-how and skills, and improve quality, efficiency

6

and breadth of financial services. Financial sector opening also allow more stable sources of

funds and promote the use of international practices in areas such as accounting, risk

management, and disclosure of financial information. Whether these arguments still hold in

the context of Cambodia’s financial trade policy is the key question for this research. No

study to date, however, has illustrated clearly the status and nature of financial sector

liberalization and its potential benefits for Cambodia’s financial sector. This study is designed

to fill this gap by answering several key questions: (1) What do broad literatures say about

concept and benefits of trade liberalization in financial services? (2) What is the level of trade

restrictiveness Cambodia imposes in financial services? (3) To what extent that the financial

sector opening contribute to the improvement in overall financial performance in the country?

Key findings of this study can be summarized as followings:

Liberalization of trade in financial services refers to the process of opening the financial

services to competition. Most literatures support theoretical prediction that trade liberalization

of financial services can help countries build more robust and efficient financial systems by

facilitating capital inflows, improving quality, innovation and efficiency, increasing

competition, introducing international practices, and intensifying pressure on government to

enhance the legal, regulatory and supervisory systems.

Cambodia is no exception along this international literature. Analysis suggests hat trade

liberalization of financial services especially under GATS framework has played some role in

strengthening Cambodia’s financial system. Not only do depth and outreach of financial

system widen, but also competition and efficiency improve significantly. Number of banks

and their branch offices boomed over the last few years along with substantial increase in

competition and efficiency. In the same vein, we also observe gradual introduction of new

technology, innovative financial products and services, and good practices by financial

service providers in particular foreign firms.

Although significant progress has been made in financial sector reforms, major constraints in

financial system still exist. Lack of financial infrastructure, weak regulatory and policy

framework, lack of market information, lack of human resources and supervisory capacity

have been identified in financial sector development strategy as priority issues for immediate

actions. If Cambodia could effectively address these problems hand in hand with financial

service market opening, they both would mutually reinforcing. Financial regulatory reforms

will create sufficient prerequisite conditions for conducive to financial sector opening; while

the later helps accelerate reforms; encourage a more transparent regulatory and supervisory

7

framework; increases the incentive for better macroeconomic policies and regulations; and

enhances credibility of rules. If this is the case, Cambodia’s financial sector liberalization

would contribute even greater to financial sector development.0

7

1.2. Research Objectives and Approach

This study had three specific objectives: (1) to understand theoretical and empirical studies on

trade liberalization in financial services and its impacts on sectoral development and

economic growth; (2) to examines the degree of financial sector liberalization in Cambodia

with emphasis on GATS frameworks and assess the extent to which liberalization can help

strengthen overall financial sector performance; and (3) to suggest further study concerning

financial service reforms and liberalization from Cambodia’s experience.

To achieve above objectives, this research uses qualitative assessment method by examining

evolution of indicators in financial services in Cambodia during pre and post periods of

liberalization. The key indicators used to measure overall performance of financial sector are

depth and outreach of financial system, competition and efficiency. Two financial sub-

sectors-- banking and insurance—are selected as units of analysis. The methods of data

collection are primarily based on literature review and secondary data analysis.

005 2006 2007

1.3. Organization of Report

This report is structured as follows: Chapter 2 looks at literature review on trade liberalization

in financial services with emphasis on the concept and benefits of trade liberalization in

financial services. It then draw analytical framework for Cambodia case study. Chapter 3

provides an overview of financial services liberalization in GATS from Cambodia’s

experience. It examines the overview of GATS, historical development of financial services

negotiation, and current commitments of financial services. It then reviews the development

of financial service liberalization in Cambodia drawing from Cambodia’s services schedule of

financial sector. Chapter 4 assesses the performance of Cambodia’s financial sector by closely

looking at three major measurements: breath and outreach of financial system, competition,

and efficiency. The report concludes with a summary of the key points and some ideas for

further research in Chapter 5.

8

Chapter Two: Literature Review--Concept and Benefits of Trade

Liberalization in Financial Services

This chapter looks at literature review on trade liberalization in financial services. It starts by

reviewing the concept and benefits of trade liberalization in financial services. It then draw

analytical framework for Cambodia case study.

2.1. The concept of trade liberalization in financial services

The financial services sector is one of the most heavily regulated sectors in an advanced

economy, and trade in financial services tends to be regulated primarily through restrictions

on entry and operations of foreign providers and on cross border exports and imports of

financial services. More specific types of barriers to entry and trade in financial services exist

in the form of limits on the availability of new banking licenses, limits on the availability of

new banking licenses, limits on establishment by foreign banks or on equity participation by

foreign financial institutions in domestic banks, eligibility criteria/government approval

required for establishment, constraints on operational activities of foreign banks, residency

requirements for board membership, constraints on lending or the imposition of directed

lending, and constraints on access to offshore financial instruments (Claessens and Glaessener,

1998). These restrictions discriminate between domestic and foreign financial service

providers and thus hamper level competition in domestic financial market.

Trade liberalization in financial services has been advocated by the multilateral trading

system which provides a framework for multilateral negotiations on rules and regulations

governing services trade. Liberalization of trade in financial services is widely understood as

the process of opening the financial services to competition. It involves the liberalization of

restrictions on entry and operation of foreign providers and on exports and imports of

financial services i.e market access. It also involves redesigning regulations in accordance

with the principles of national treatment (NT) and most-favored nation (MFN) as well as

enhancing transparency of financial regulations essential for creating equal competitive

opportunities for domestic and foreign providers (Tamirisa et al., 2000). Restriction on trade

in services is more complex than on trade in goods. Restrictions on goods trade usually take

the form of tariffs. In contrast, restrictions on trade in financial services usually take the form

of government regulations. Juan (2008) classified protective measures in the provision of

9

financial services into three categories: measures related to establishment, measures related to

cross-border supply, and operating requirements.

Measures related to establishment regulate the ability of foreign financial service suppliers to

enter into domestic financial market. These might include, but not limit to, licensing policies,

restriction on direct branching, joint venture requirements, and limitation on the total value of

assets. Cross-border supply is generally more restricted than establishment trade. These

restrictions are usually motivated by capital controls, supervisory concerns, or a lack of

resources to supervise these transactions. In the case of banking, cross border supply

restrictions could be the requirement of service provision through commercial presence or

such cross border service supply is permitted but subject to host-country prudential regulation.

In the case of insurance sector, the host regulatory authority may impose specific

requirements, such as registration/notification and collateralization for the insurance of large

risks or tax on reinsurance premiums paid to overseas insurers/reinsurers. Operating

requirements are more stringent in the financial sector than in any other. The measures could

be capital requirements, limitations on the scope of business, different taxation, restrictions on

the number of operations, or requirement on the membership of nationals in boards of director.

Because restrictions in financial services usually concerns regulations, measuring

impediments to trade in financial services is very difficult. A couple of studies tried to

measure restrictions in trade in services. In a collaborative project, the Productivity

Commission and the Australian National University1 have been measuring the restrictions on

trade in services for a number of economies in Europe, Asia, North and South America. The

study constructed Trade Restrictiveness Index (TRI) using qualitative information about

regulations, which are classified according to whether the restrictions are imposed on

establishment or ongoing operations, and non-discriminatory or discriminatory between

domestic and foreign services suppliers. TRI score is calculated using a methodology of

scores and weights, which ranges from 0 to 1 (the more stringent the restriction, the higher the

score). An index score is calculated separately for domestic and foreign services suppliers. A

foreign index measures all the restrictions that hinder firms from entering and operating in an

economy. It covers both discriminatory and non-discriminatory restrictions. A domestic index

represents restrictions that are applied to domestic firms and it generally only covers non-

discriminatory restrictions. The difference between foreign and domestic index scores is a

measure of discrimination against foreigners.

1 http://www.pc.gov.au/research/researchmemorandum/servicesrestriction

10

McGuire and Schuele (2000) also conducted similar study by constructing TRI for banking

sector for 38 economies in Asia Pacific, America and Europe. Index score was calculated for

domestic and foreign banks to separately quantify the extent to which regulation restricts

domestic and international competition. The foreign index covers restrictions relevant to

foreign banks, and the domestic index covers those applying to all banks. Measurable

variables used for index scoring for banking sector include licensing of banks, direct

investment, foreign equity participation, restriction on certain types of services by foreign,

joint venture arrangement, permanent movement of people, raising and lending funds by

foreign banks, and other restrictions. The study found that restrictions on banking services

vary significantly among economies. Common restrictions are limitations on the number of

bank licenses available, restricting foreign entry to only joint ventures with new domestic

banks, limiting foreign equity participation in domestic banks, and restricting operations.

2.2. Gains from trade liberalization in financial services

Literatures on trade liberalization in financial services centre on two major issues. First is on

the extent to which financial sector opening could foster economic growth, and second is on

economic fundamentals and benefits of financial sector opening.

2.2.1. Trade liberalization in financial services and economic growth

Literatures on finance and growth widely recognize the significant contribution of financial

sector in the whole economy. It not only contributes directly to output and employment, but

also provides an essential infrastructure for the functioning of the entire economy. Financial

system serve as a channel through which savings can be mobilized and used to finance

investment and at the same time facilitate transactions necessary for internal and external

trade. It also helps to manage risks and reduce information asymmetries between providers

and users of fund. More specifically from theoretical argument, financial sector can affect

savings and capital accumulation, promoting technical innovation, enhancing productivity and

hence economic growth through five broad functions: (i) facilitating transactions, (ii) risk

management, (iii) mobilizing saving, (iv) allocating funds, and (v) monitoring firm managers

(Levine, 1993). The basic theoretical prediction is that financial sector opening would foster

financial sector development. Countries with better developed financial systems should enjoy

faster rates of economic growth than countries with less well developed financial system.

Several key empirical studies, viz. Francois et al. (1999), Matto el al. (2001), Levine (1996

and 1997), King and Levine (1993), and Bercuson (1995) support this theorem. Francois et al.

11

(1999) found strong positive relationship between financial sector competition and financial

sector openness, and between growth and financial sector competition. The results suggest

that moving from a closed to a relatively open financial services regime is correlated with

significant pro-competitive pressures, and ultimately with large differences in growth rate.

Mattoo et al. (2001) found that countries that were open to trade in financial services achieved

growth rates up to 1.2 percentage points higher than rates in other countries over the period

1990-1999. Levine (1996 and 1997) and King and Levine (1993) show that both developed

and developing countries with open financial sectors have typically grown faster than those

with closed one. Bercuson (1995) who observes rapid development of Singapore suggested

that economic success of this country has been facilitated by internationally-oriented financial

service sector.

2.2.2. Trade liberalization in financial services and financial sector development

Another important issue emerged from literatures on financial services opening is its impacts

on financial sector development. Most literatures widely agreed that trade liberalization of

financial services can help countries build more robust and efficient financial systems; and the

channels through which liberalization affects financial development exist at least five ways:

(i) it facilitates capital inflows, (ii) it spurs domestic financial institutions improve quality,

innovation and efficiency, (iii) it enhances competition, (iv) it introduces international

practices and upgrades financial standards i.e. accounting and auditing, and (v) it intensifies

pressure on government to enhance the legal, regulatory and supervisory systems.

Several studies attempted to empirically identify ways in which liberalization in financial

services affect financial system. Bhattacharaya (1993) reports that foreign banks in Korea

have provided the economy with greater access to international financial markets than what

their own domestic banks could; while McFadden (1994) stresses that the policy objectives of

opening to foreign banks in Australia was to enhance contacts with the international financial

community and thereby increase capital inflows.

On efficiency benefits, foreign banks tend to be more efficient than their domestic

counterparts (Barajas et al., 2000, Bhattacharya et al., 1997, Clarke et al., 2000, Demirguc-

Kunt and Huizinga, 2000, and Kiraly et al., 2000). Entry of foreign banks also tends to

facilitate the dissemination of new technology, managerial knowledge and financial expertise

throughout the financial sector (Levnie, 1996), and to increase the efficiency of domestic

banking sector by reducing costs and profitability of domestic banks (Claessens and Glaessner,

1998, and Terrel, 1986). Specific country case studies are observed by Bhattacharaya (1993).

12

Foreign banks have introduced new and better services and have led the boom in credit cards

and automated machines (ATM) in Spain. Similarly, in the case of Turkey, foreign banks

computerized most of their banking operations, used modern budgeting and planning

techniques, and quickly tied themselves to the SWIFT payment system network. Similar

findings are also found among group of OECD countries (Hoj et al., 1995). There were

significant positive effects on financial sector efficiency associated with liberalization among

OECD countries. Financial reform in OECD countries’ banking sector has resulted in

improvement in most indicators of operational efficiency i.e. net interest margin, gross

income to capital, staff cost to gross income and average commission. In sum, evidence

suggests that foreign banks directly improve the range and quality of financial services in

countries that are open to foreign banks and indirectly promote financial development by

inducing domestic banks to improve their operations.

Openness to foreign financial service providers is also expected to stimulate competition in

the sector, resulted in greater efficiency, dynamism and innovation. In more competitive

industry, financial firms tends to provide more services at lower costs and prices (Tamirisa et

al., 2000, and Levine, 1996). Foreign competition encourages domestic providers to improve

variety and quality of their financial services and products (Bonin and Abel, 2000). Using

Hungary as case study, the study found that competition from new foreign entrants in

Hungary stimulated the main domestic banks to develop new products and better services

such as bank cards and ATM. In addition, the increased competition could also encourage

domestic providers to modernize their management practices including internal control and

risk management (Kono et al., 1998, Levine, 1996, Nicholl, 1997, and Armendariz, 1997).

Finally, financial service opening tends to discipline policies and encourages policy makers to

improve clarity, consistency and transparency of financial regulation and supervision (Levine,

1996, Nicholl, 1997, Armendariz, 1997, and Glodstein and Turner, 1998). Better bank

regulation will reduce the chances for systemic failure, and improve the sustained provision of

growth-enhancing financial services—risk diversification, transaction facilitation, resource

mobilization, resource allocation, and corporate governance. These improvements would

contribute to financial development and economic growth. Furthermore, financial service

opening put pressure on the governments especially in developing countries to harmonize

regulatory and supervisory procedures and standards with those of developed countries.

Glaessner and Oks (1994) demonstrates that Mexico is under pressure to harmonize

prudential regulations in areas such as capital adequacy, valuation and accounting principles,

related-party transactions, and conflict-of-interest provisions following its commitment to

open financial services under North American Free Trade Agreement (NAFTA). They even

13

predict an important improvement in Mexico’s laws and regulations regarding corporate and

bankruptcy law, laws regarding negotiable instruments, and laws relating to secured

transaction.

2.3. Indicators used for Assessment of Financial Sector Performance in Cambodia

From the above literatures, financial service opening can help build more robust and efficient

financial systems by facilitating capital inflows, improving quality, innovation and efficiency,

increasing competition, introducing international practices, and intensifying pressure on

government to enhance the legal, regulatory and supervisory systems. Providing that sectoral-

wide indicators in Cambodia are limited, evaluation of financial development covers breadth

and outreach of the financial system, competition and efficiency.

Data on the financial breadth or penetration often serve as proxies for access of the

population to different segment of the financial sector. Well-functioning financial systems

should offer a wide range of financial services and products from a diversified set of financial

intermediaries and market. Sectoral indicators of financial development in banking may

include total number of banks, number of branch and outlets, bank deposit to GDP ratio, bank

assets to financial assets ratio, and bank asset to GDP ratio. For insurance sector, indicators

are number of insurance companies, gross premiums to GDP ratio, and gross life premiums to

GDP ratio

Competition in the financial system can be defined as the extent to which financial markets

are contestable and the extent to which consumers can choose a wide range of financial

services from a variety of providers (WB and IMF, 2005). Indicators that can measure

competition include total number of financial institutions, change in market share, ease of

entry, interest rate spreads and price of services. Quantitative measures of efficiency are

intermediation costs and interest rate spreads.

14

Chapter Three: Financial Services Liberalization in GATS--

Experience from Cambodia

This chapter looks at financial services liberalization in GATS from Cambodia’s experience.

It first examines the overview of GATS and then discusses historical development of financial

services negotiation as well as current commitments of financial services offered by WTO

members. The last session reviews the development of financial service liberalization in

Cambodia, and summarize Cambodia’s services schedule of financial sector.

3.1. Overview of General Agreement on Trade in Services

General Agreement on Trade in Services (GATS) was concluded along with other major

agreements in the Uruguay Round negotiations in 1995. It provides a framework of

commonly accepted rules and disciplines governing WTO Members' trade in services with a

view to achieve progressively higher levels of liberalization of trade in services through

periodic rounds of multilateral negotiations. The GATS has four main components: (i)

definition and scope; (ii) a framework agreement defining general obligations; (iii) a schedule

of specific commitment; and (iii) annex.

Scope and Definition: GATS classifies all trade in services in four ways (or modes). Mode 1-

-cross-border trade refers to services provided from the territory of one Member into the

territory of any other Member. Mode 2 or consumption abroad is defined as services provided

in the territory of one Member to the service consumer of any other Member. Mode 3--

commercial presence refers to service supplied by a service supplier of one Member, through

commercial presence, in the territory of any other Member. Mode 4--presence of natural

persons is defined as services provided by a service supplier of one Member, through

presence of natural persons of a Member in the territory of any other Member. In terms of

scope, this Agreement applies to measures by Members affecting trade in services (Article

I:1). It does not matter in this context whether a measure is taken at central, regional or local

government level, or by non-governmental bodies exercising delegated powers. The measures

can be in the form of a law, regulation, rule, procedure, decision, administrative action, or any

other form.

15

General Obligations: like in GATT, MFN principle is the most important general obligations

that bind members to treat service providers no less favorable than that accorded to like

services and service suppliers of any other countries (Article II). The MFN obligation is

applicable to any measure that affects trade in services, whether specific commitments have

been made or not. Yet, this obligation can be exempted in many means. In addition to

‘traditional’ exemptions such as for regional integration schemes (Article V), GATS contain a

sweeping exemption for all MFN-inconsistent measures that Members listed at the end of the

Uruguay Round or, if later, the date of accession in the Annex. The measures, however, are

subject to time limitation (in principle not exceed 10 years), to review (usually after 5 years),

and to be negotiated in any subsequent trade rounds. The other general obligations stipulated

in GATS relate to requirements such as transparency and disclosure of information, economic

integration, domestic regulation, recognition of standards, monopolies, emergency safeguard

measures, and other general issues.

Transparency provision (Article III) requires all members to publish all relevant measures of

general application that affect the establishment and operation of services providers of other

members. Moreover, it requires members to inform the Council for Trade in Services at least

annually of all legal or regulatory changes that significantly affect trade in sectors where

specific commitments have been made. Members are also required to establish enquiry points

which provide specific information to other Members upon request (Article IIIbis).

Transparency requirement is intended to promote disclosure of information and to enhance

better accessibility to relevant regulations that affect trade in services. The provisions

covering economic integration (Article V) are analogous to those in Article XXIV of GATT,

allowing members to enter into an agreement liberalizing trade in services among the parties

to such agreement. Yet, it requires arrangements to have “substantial sectoral coverage” and

to “provide for the absence or elimination of substantially all discrimination” between the

parties.

Provisions on domestic regulations (Article VI) spell out that all measures of general

application affecting trade in services should be administered in a reasonable, objective and

impartial manner. Provisions on recognition (Article VII) spell out obligations that members

should recognize the education or experience obtained, requirements met, or licenses or

certifications granted in other member territories as standards or criteria for securing the

authorization, licensing or certification in the services area. It encourages recognition

requirements achieved through harmonization and internationally-agreed criteria. Provisions

on monopolies (Article VIII) state that parties are required to ensure that monopolies and

exclusive service providers to neither abuse its monopoly position nor act in a manner

16

inconsistent with its MFN obligations and specific commitments. On safeguard provisions,

while parties are normally obliged not to restrict international transfers and payments for

current transactions, they are allowed to limited restrictions in the event of balance-of-

payments difficulties. However, such restrictions would be subject to conditions; including

that they are non-discriminatory, that they avoid unnecessary commercial damage to other

parties and that they are of a temporary nature.

Specific Commitments: GATS contains specific commitments in service schedule relating to

market access (Article XVI) and national treatment (Article XVII) for the service activities on

the terms and conditions specified in the schedule. When making a commitment a government

therefore binds the specified level of market access and national treatment and undertakes not

to impose any new measures that would restrict entry into the market or the operation of the

service. The commitments guarantee to economic operators in other countries that the

conditions of entry and operation in the market will not be changed to their disadvantage.

Market access provisions (Article XVI) require all members to accord services and service

suppliers of any other Member treatment no less favorable than that provided for under the

terms, limitations and conditions agreed and specified in its schedule. The intention of the

market-access provision is to progressively eliminate the four major types of measures:

limitations on numbers of service providers, on the total value of service transactions or on

the total number of service operations or people employed. Equally, restrictions on the kind of

legal entity or joint venture or any foreign capital limitations relating to maximum levels of

foreign participation are to be progressively eliminated.

The national-treatment provision (Article XVII) requires members to accord to services and

service suppliers of any other member, in respect of all measures affecting the supply of

services, treatment no less favourable than that it accords to its own like services and service

suppliers. However, it does provide the possibility of different treatment being accorded the

service providers of other parties to that accorded to domestic service providers as long as the

conditions of competition are not modified in favour of the domestic service providers.

Annexes: Attaches to GATS are seven annexes that form an integral part of this Agreement.

They outline horizontal issues and sector-specific issues, including MFN exemption,

movement of natural persons, air transport services, financial services, maritime transport

services, and telecommunications.

17

3.2. Financial Services Liberalization in GATS

3.2.1. Historical Development of Financial Service Negotiations

Liberalization of financial services sector is governed by GATS. Financial service is defined

in this Agreement as ‘any service of a financial nature offered by a financial service supplier

of a Member’. Financial services include two broad categories of services: insurance and

insurance-related services, and banking and other financial services. Financial services

liberalization was a major challenge during the Uruguay Round. Negotiation on financial

services remained unfinished at the end of the Uruguay Round negotiations largely due to the

fact that broad exemptions on MFN and national treatment remain prevailed and that specific

commitments on market access and national treatment provided by many major WTO

members were widely regarded as not essential and enough. Under the mandate of Article

XIX of GATS requiring members to progressively liberalize trade in services through

successive rounds of negotiations, further negotiations were planned during a six-month

period following the entry into force of the GATS. Two additional rounds of negotiations on

financial service were held, one in 1995 and the

other in 1997.

The 1995 financial service negotiation resulted in

interim agreement that members made notable

improvement in specific commitments and in the

scope of MFN exception. Yet, the overall results

of negotiation were not satisfactory and not

widely accepted. Negotiation was reopened in

April 1997 reaching an agreement on a new and

improved set of schedules of commitments in all

of the three major financial service sectors—

banking, securities and insurance were agreed

and adopted. The new agreement contains

significant improvements, viz. by allowing

commercial presence of foreign financial service

suppliers, and eliminating or relaxing limitations

on foreign ownership of local financial

institutions, limitations on the juridical form of

TIMELINE

June 1995: Negotiations continue after no

agreement on financial services in the

Uruguay Round negotiations

April 1997: Negotiations reopen following

unsatisfactory agreement in 1995

negotiations

January 2000: Negotiations begin

March 2001: Guidelines and the Procedures

for the Negotiations on Trade in Services are

adopted

November 2001: Doha Development

Agenda is adopted

March 2003: Deadline for receiving “initial

offers”

July 2004: “July Package” resuscitates

negotiations and establishes deadline of May

2005 for submission of revised offers

December 2005: Hong Kong Ministerial

Conference reaffirms key principles of

services negotiations

July 2006: Doha negotiations suspended

January 2007: Resumption of Doha

negotiations

July 2008: Services Signaling Conference

held as part of “July 2008” package

Source: WTO

18

commercial presence, and limitations on the expansion of existing operations. Important

progress was also made in “grandfathering” existing branches and subsidiaries of foreign

institutions that are wholly sector or majority-owned by foreigners.

Another new round of service negotiation was launched in January 2000, during which

negotiations proceeded on an almost purely multilateral basis, with several negotiating

proposals being submitted. A year later in November 2001, the services negotiations were

incorporated into the Doha Development Agenda, which gave more emphasis to bilateral —

request and offer — negotiations. The negotiations on financial services, as on other services

sectors, have been disappointed especially in the areas of number and quality of offers. No

significant improvements from the previous commitments have been offered, while in most

cases no new business or access opportunities have been granted. As of today, 71 offers

(initial and revised) have been submitted, representing 95 members. Almost half of them

contain improvements to financial services commitments. However, improvements are not

significant, and in many cases, fall behind the current — more open — regulatory framework2.

3.2.2. The Status of Current Commitment in Financial Services

Financial service is the second sector behind tourism that WTO members have more GATS

commitments containing 105 schedules (Juan, 2008). The coverage and extent of

liberalization are found more comprehensive in developed countries than in developing

countries, and more opened in banking sector than insurance and securities sectors. It is also

found higher number of limitations maintained on market access and national treatment; while

level of commitment is relatively low compared to some other sectors, probably reflecting the

common concerns over financial sector instability that market opening could bring about.

In terms of mode of supply, full opening of cross-border supply is rare, except in such sector

as MAT insurance, reinsurance, auxiliary services to insurance, insurance intermediation, and

the provision and transfer of financial information. Market access limitations on the supply of

financial services through commercial presence are also common. According to Juan (2008),

limitations on the type of legal entity i.e. branch versus subsidiaries predominate, followed by

limitations on foreign equity participation, limitations on the number of suppliers, and

limitation on the value of transactions or assets. Developed and transition economies are more

opened in participation of foreign capital, but more restrictive in type of legal entity.

Limitations on the number of suppliers are equally frequent for developed and developing

2 http://www.wto.org/english/tratop_e/serv_e/finance_e/finance_e.htm#nego

19

economies. Juan (2008) also observes that commitments made by acceding countries are

generally broader and more liberal than commitments made by other WTO members at

similar stages of development. All twenty-three countries that acceded to the WTO between

1995 and end-2007 have covered a wider range of financial services.

3.3. Overview of Financial Sector Liberalization in Cambodia

Financial sector in Cambodia has undergone substantial changes since early 1990s including

structural reforms and financial market opening. The latter is at nascent stage and it is

influenced by both more liberal economic policy and sectoral development strategy. At

economy-wide level, Cambodia’s economic policy has shifted toward more liberal and

outward-looking with principal goal of expanding and strengthening economic ties and

international cooperation through the integration of its economy into the regional and world

economy. Cambodia’s membership in the Association of Southeast Asian Nation (ASEAN)

in 1999 and later in the World Trade Organization (WTO) in 2004 indicates higher degree of

its economic integration and to most extent suggests the progressive development of country’s

economic liberalization. Under regional economic cooperation schemes, Cambodia is obliged

to reduce and eliminate trade barriers in order to assure freer movement of goods and services.

Under multilateral framework, it is required to ensure compliance with WTO rules and

principles by adopting a series of regulations that would strengthen the judicial system

regarding commercial activities, respect trade-related intellectual property rights, facilitate a

smooth functioning of external trade and promote financial intermediation. To achieve these

aims, Cambodia has made numerous commitments to make its trade policy and practices fair

and non-discriminatory, transparent and predictable and those relate to state ownership and

privatization, pricing policies, tariff rates, quotas and tariff exemptions, quantitative import

restrictions, export restrictions, export subsidies, anti-dumping measures, countervailing

duties and safeguard regimes, customs valuation, pre-shipment inspection, rules of origin,

industrial policies, agricultural policies, standards and certifications and textiles regime.

The gradual and ongoing reforms have improved Cambodia’s economic landscape with trade

and investment regime becoming not only less restrictive but also more conducive to

investment and private sector. Several studies support positive development of Cambodia’s

economic openness. The Index of Economic Freedom compiled annually by the Heritage

Foundation in the United States, for example, ranked Cambodia at the top of the LDCs it

covers in 2003 and ranked 106th among 179 countries in 2009 and 21st out of 41 countries in

20

the Asia-Pacific region3. Trade freedom score is very much improved, while openness index

achieve higher score reaching 140 per cent in 2006 as compared to 45 per cent in 1996 (CDRI,

2008). In terms of investment, Cambodia officially welcomes foreign direct investment.

Cambodia’s 1994 Law on Investment established an open and liberal foreign investment

regime. All sectors of the economy are open to foreign investment and 100 percent foreign

ownership, except of land ownership, is permitted in most sectors. Aside from this, there is

little or no discrimination against foreign investors either at the time of initial investment or

after investment.

At sectoral level, financial system had undergone important changes in terms of structural

reforms and financial market opening. Structural reforms were initiated in 1989 through a

government decree to establish a two-tier banking system by separating the function of

commercial banks from national bank of Cambodia. Foreign banks have been authorised since

1991 and competition in banking sector had been encouraged through prudent liberalization

and the opening of an appropriate competition environment between local and foreign banks.

Foreign banks are allowed to open subsidiaries, branches, and representative offices. Law on

Banking and Financial Institutions was adopted in 1999 to govern all financial operations.

This law together with subsequent regulations guaranteed foreign banks rights and obligations

equal to local banks; while it provides no restriction regarding foreign ownership of banks. In

addition, there is no restriction on participation of foreign executives in the board of directors

and on the work permit and movement of such natural persons as foreign executives, senior

managers or specialists.

The process of financial service openness in Cambodia is also stimulated by financial sector

development strategy 2006-2015. With principal objective to support the development of a

sound market-based financial system, resource mobilization, effective financial resource

allocation, and broad-based sustainable economic growth, this sectoral plan encompasses

several aspects of financial system, one of which is the financial services openness in order to

create more balanced financial structure, increases the depth of the financial sector, and

promotes competition in the context of financial stability. International trade agreements on

services, viz. general agreement on trade in services (GATS) also play a role in fostering

financial service opening process in Cambodia. More details about Cambodia’s service

schedule will be provided in later session.

3 http://www.heritage.org/Index/Ranking.aspx

21

The status of financial services liberalization in Cambodia has been assessed by Saing (2008).

He borrows framework designed by McGuire and Schuele (2000) and uses Trade

Restrictiveness Index (TRI) to estimates the extent and level of openness or restriction of an

economy’s trading regime for finance services. Similar to McGuire and Schuele (2000),

indicators used for calculating TRI for banking services are licensing of banks, form of

commercial presence, foreign equity participation permitted, restriction on certain types of

services by foreign, joint venture arrangement, permanent movement of foreign executives,

raising & lending funds by foreign banks, and other restrictions; while indicators for

insurance services include licensing of insurance companies, form of commercial presence,

foreign equity participation permitted, restriction on certain types of services by foreign,

joint venture arrangement, cross border supply by insurance companies, limitation on foreign

suppliers, scope of raising fund by domestic & foreign, and expanding the number of

insurance outlets. Furthermore, Saing (2008) constructs foreign index, which covers

restrictions relevant to foreign financial service suppliers, and domestic index, which covers

restrictions applied to all suppliers.

The result suggests that restriction

against foreign participation in both

banking and insurance is extremely low.

Discrimination in insurance industry is

slightly higher than that of the banking

sector. Saing (2008) even argues that

significant improvement in degree of

openness of financial sector reflects the

changes of existing rules, introduction

of several new outward-oriented

regulations and practices of free market

economy.

3.4. Cambodia’s Financial Service Schedule in GATS

Cambodia’s financial services liberalization represents a bold commitment it has made during

WTO accession in October 2004. According the country services schedule, financial services

is much less restrictive to foreign competition and investment in nondiscriminatory

environment. There is no MFN exception on financial sector; while there are two measures /

Source: Saing (2008)

Table 3.1: Trade Restrictiveness Index

22

restrictions specified in horizontal commitments applicable to financial sector. First is

restriction on land ownership applicable to mode 3. It clearly states that non-Cambodian

natural and juridical persons may lease but not own land. Second measure applies to

movement of natural persons (mode 4). The number of foreign nationals to be employed in a

particular establishment or services sector was limited to 10 per cent of the workforce and

only available to residents of Cambodia. The Ministry of Labour could, however, authorize a

higher percentage of foreign employment where specific skills were not available in the

domestic market. Such restriction does not apply to natural persons that are responsible for

setting up of a commercial establishment; and intra-corporate transferees, which include

executives, manager who possess knowledge at an advanced level of expertise or proprietary

knowledge, and specialists.

On specific commitments in financial services, no limitations on market access and national

treatment applied to mode 2 in all sub-sectors. Some financial services such as life insurance

services, non-life insurance services, and services auxiliary to insurance, are completely open

to foreign investments and national treatment. While some sectors are also open to foreign

investment but subject to conditions set by relevant laws. For example, companies in

reinsurance and retrocession must reinsure 20 per cent of their risk in Cambodia; while all

commercial banks must obtain licenses from the National Bank of Cambodia (NBC) before

fully operate in banking services. During the time of its accession, Cambodia’s financial

sector is at a nascent stage of development at which some financial services such as financial

leasing, stock exchange and transferable securities have not yet functioned; while laws and

regulations governing these financial activities have not yet established. Lack of regulatory

infrastructures made the country more cautious to opening up to foreign competition. As a

result, it is found limitations on market access in mode 3 in such sectors as financial leasing,

guarantees and commitments, foreign exchange, derivative products, exchange rate and

interest rate instruments, transferable securities, money broking, and asset management are

unbound and subject to related laws and regulations to be adopted. Details about Cambodia’s

Financial Service Commitments are provided in the Annex.

In general, Cambodia is at the stage of development that is in need of and opened to foreign

direct investment. Financial services are no exception and foreign direct investments in this

sector are strongly encouraged though they are subject to certain conditions obliged by

relevant rules and regulations. Most restrictions are prudential in nature, which are primarily

intended to ensure the soundness and stability of financial system. Furthermore, except in

areas of land ownership and labor requirement, no other measures applicable in financial

services discriminate between domestic and foreign financial service suppliers.

23

Chapter Four: Assessment of Financial Sector Performance in

Cambodia

This chapter assesses the performance of Cambodia’s financial sector by closely looking at

three major measurements: breath and outreach of financial system, competition, and

efficiency. The unit of analysis is broken down into two separate sub-sectors of financial

sector: banking and insurance sub-sectors performance. Since most financial indicators are

not available before 2004, the time of observation is 2005 onward.

4.1. Depth and Outreach of Financial System

Banking Sector

The Cambodian banking sector has grown dramatically in recent years with the total number

of banks increasing from 19 in 2005 to 30 in 2008. As of 2008, the banking sectors consist of

20 private local banks, 3 foreign banks and 1 state-owned bank. Interestingly, the branches

have increased even more rapidly from 49 in 2004 to 105 in 2008. The increasing number of

banks stimulates wider physical access to banking services as reflected introduction of

electronic banking services, ATMs and POS by all major banks since 2005. As of 2007, banks

have issued 150, 546 debit/ATM cards, 4, 953 credit cads and installed 177 ATM. The

number of ATM machine doubled just in a year amounting to 338 machines throughout the

country.

The overall size of banking sector has also expanded quickly in recent years; ratio of broad

money to GDP (M2 to GDP) and ratio of bank asset to GDP increased at average rate of 36

per cent and 46 per cent, respectively, during 2005-08. As of 2008, broad money accounts for

41 per cent of GDP rising from 22.8 percent in 2005; while bank asset represents 58 per cent

of GDP, an increase from 25 per cent in 2005. Loans and deposits also expanded significantly

at average rate of 53 per cent and 35 per cent, respectively during 2005-08. In 2008, total

loans grew 4 times from 2005 reaching USD 2, 401 million or 34 per cent of GDP; while total

deposit rose to USD 2534.9 million from USD 958.6 million in 2005.

24

Table 4.1: Financial Depth and Outreach 2005-08

2005 2006 2007 2008 % change 2005-08

Number of Banks 19 20 24 30 17%

Private local banks 15 16 20 26 17%

Foreign banks 3 3 3 3 0

State-owned banks 1 1 1 1 0

Number of branches 49 53 84 105 31%

Total loans (USD mil.) 572.9 871.5 1559.2 2401.1 62%

Loan growth (%) 27% 52.1% 78.9% 54% 53%

Loan as % of GDP 10.7% 14.7% 23.6% 34% -

Total deposits (USD mil.) 958.6 1384.7 2442.3 2534.9 -

Deposit growth (%) 15.8% 44.5% 76.4% 3.8% 35%

Deposits as % of GDP 17.8% 23.3% 36.9% 35.9% -

M2/GDP (%) 22.8% 28.5% 42.1% 41.4% -

Total bank asset (USD mil.) 1359.4 1878.8 3309.4 4107.3 46%

Bank asset as % of GDP 25.3% 31.6% 50.0% 58.1% -

Source: National Bank of Cambodia

The strong growth of the banking sector was driven in part by the economic growth that

stimulate more demands from both corporations and households on banking services, and

partly by the continuing improvement of the regulatory and supervisory body, which leads to

increased public confidence in the banking sector. Meanwhile, it is observed that the pattern

of banking sector development has coincided with different degree of economic and sectoral

openness to competition. For example, low performance of banking sector happened during

the period that Cambodia undertook massive economic and sectoral restructuring toward more

opened and outward looking policy. During that period, Cambodia’s economy was at a

nascent stage of reforms and integration and thus it saw private sector including banking

sector progressed gradually and rather slowly. Once Cambodia has taken further step to

deepening its economic integration and fastening economic and trade liberalization,

investment in and performance of financial sector performance blossomed. Therefore, it is fair

to argue that trade liberalization in services plays a role in strengthening the depth and

outreach of banking sector.

Insurance Sector

The history of Cambodia insurance industry is very recent. The industry began operation in

1992 after the adoption of the law on the Establishment of Insurance Business in Cambodia.

25

A state-owned insurance company known as CAMINCO was established as regulator,

operator and reinsurer, followed by three private insurers as its agents, namely Indochine

Insurance4 (1994), Asia Insurance (1995) and Forte Insurance (1999)in the developing stage

governed by Law on Insurance, which was passed in 2000. Given its recent development and

poor public awareness of the necessity and significance of non-live and life insurance, the

sector remains very small with slow progress in the performance. As of 2007, five companies

involve in insurance business with total asset at USD 49.6 million and total net premium at

USD 6.25 million. The number of

policy holders doubled over the

last three years from 18, 407 in

2005 to 29, 124 in 2007. Yet, the

market size is still small as

reflected by minimal share of

gross premium to GDP at 0.3 per

cent in 2007.

At its embryonic stage, insurance services are unsophisticated and narrow. The main products

are motor vehicle, commercial fire and insurance that makes up about 80 per cent of the total

industry. There is no life insurance, but there is a plan to create such insurance services

through a joint venture of private insurance companies and government. From the above

observation, it is evident that Cambodia’s insurance sector is still at infant stage of

development with limited legal framework, low public awareness and usage of insurance

services, and unsophisticated insurance products. Opening up the sector to foreign

competition via more liberal service trade policy could only play minimal role in boosting the

development in this sector. Market demands, sound regulatory framework and effective

supervisory institutions are more essential at this early stage to insurance sector development.

4.2. Competition in Financial Sector

Banking Sector

The Competition in banking services in Cambodia becomes stronger in recent years especially

after entry of few international banks. Higher degree of competition is reflected by increasing

number of banks and rapid expansion of branch offices. As of 2008, total numbers of bank

operating in Cambodia reached 30 banks with 105 branches throughout the country. Not only

4 It was closed in 2004 due to financial difficulties during the transformation of being licensed.

Table 4.2: Depth and Outreach of Insurance Sector

2005 2006 2007

Number of insurance

companies 4 3 5

Policy holders 18, 407 - 29, 124

Total assets (in USD mil.) 31.9 - 49.6

Gross premiums as % of GDP 0.2% 0.2% 0.3%

Source: Ministry of Economy and Finance (MEF)

26

do bank outlets flourish throughout the main towns and provinces, but also banking services

are introduced and offered to consumers at more convenient and competitive packages.

Before 2005, for example, there were limited ATM machines and they were installed at the

bank head offices. Furthermore, consumers were charged a monthly fee for the use of debit

card. Since ANZ Royal entered the market in 2005 with aggressive market penetration

strategy, competition landscape in banking sector changed dramatically especially in aspects

of facilities, banking products and services and corporate strategy. From this observation,

foreign banks bring about superior technology, good business practices and innovative

banking products and services and these driving forces pressure incumbent local firms to

improve their banking products and services in order to stay in the market. As a result,

banking market becomes more competitive.

Another approach to assess competition status is to look at market structure. Table 4.3

suggests that market structure in bank deposit services is concentrating in five major banks,

which all together represent two thirds of total deposit. Yet, none of these banks has dominant

power in the market. This argument can be proved by Herfindahl Index (HI), which is

calculated as the sum of the squared market share of each firm in the industry. HI in deposit

market is fairly low at 0.13 in 2007. As a general rule, this indicates moderate concentration

and deposit market is fairly competitive with no dominant players. On loan market, the

market structure is very similar to deposit market, which is dominated by few major banks.

However, it has higher concentration as reflected by higher HI at 0.18. At this level of

concentration, there is no any bank that has dominant power in loan market.

Table 4.3: Market Structure of Banking Sector in Cambodia

2005 2006 2007

Deposit market

Canadia Bank Plc. 24.9% 21.1% 18.4%

Foreign Trade Bank of Cambodia 15.0% 13.9% 7.4%

Cambodian Public Bank 13.1% 13.7% 12.5%

Cambodian Commercial Bank Ltd. 9.6% - 7.4%

ANZ Royal Bank (Cambodia) Ltd. 7.8% 13.3% 21.0%

Herfindahl Index (HI) 0.13 0.12 0.13

Loan market

Canadia Bank Plc. 26.8% 24.9% 21.9%

Acleda Bank Plc. 17.0% 18.2% 20.1%

Cambodian Public Bank 13.9% 17.9% 22.9%

Union Commercial Bank Plc. 7.8% 5.7% -

ANZ Royal Bank (Cambodia) Ltd. - - 9.1%

Herfindahl Index (HI) 0.17 - 0.18

Source: National Bank of Cambodia

27

In sum, the dominance of a few major banks in deposit and loan markets largely reflect their

superiority and strong business performance as compared to the rest of the banks, but it does

not necessary reduce competition. In contrast, bank deposits and loans are highly competitive

as suggested by low HI.

Insurance Sector

Insurance market in Cambodia is still very small and competition is not as strong as that in

banking sector. The numbers of insurance companies are very few with only four insurers in

2005 and increase to five in 2007, one of which is public insurance enterprise. HI calculated

for this sector score very high and this suggests that the insurance industry with that few

competitors has a high level of concentration. The market share by gross premium is

dominated by two major insurance companies, one of which took half of the market share. It

can be argued from this market structure that the dominant companies might have certain

power in the market and if this is the case it could curb competition among incumbent firms

as well as prevent new comer from entering into the market. In fact, foreign competition in

insurance sector is not as acute as in the banking sector and that’s why the market is less

competitive. Therefore, it is fair to argue here that the degree of competition in financial

market is to some extent subject to level of participation by foreign firms in the domestic

financial market. The more the foreign firms are in the market, the more competitive is the

industry.

Table 4.4: Market Structure of Insurance Sector in Cambodia

2005 2006 2007

Market share by gross premium

Forte 46.50% 51.70% 50.30%

ASIA 42.70% 37.80% 34.80%

CAMINCO 10.70% 10.50% 9.70%

CAMPUBANK LONPAC - - 3%

Infinity - - 2.20%

Herfindahl Index 0.41 0.42 0.38

Source: Ministry of Economy and Finance

4.3. Efficiency in Financial Sector

Banking Sector

Although competition in banking sector is significantly increasing in recent years, banking

products and services are not yet provided at the lowest cost. Cost of borrowing, for example,

28

remains high in spite of gradual decline over the last decade. Twelve-month cost of borrowing

was approximated at 16.5 percent for US dollar loan and 20 percent for Riel5 loan between

years 2001 and 2007, while interest rates for twelve-month deposit for riel and dollar

currencies were around 4 percent and 7 percent, respectively. On the twelve-month loan-

deposit spread during the last five years, US dollar spreads declined steadily, but slow at

about 0.5 percent a year. On the whole, long-term cost of borrowing remains high despite

gradual falls reflecting banks’ reluctance to cut back lending cost as most commercial banks

seek fund from abroad which is costly.

Figure 4.1: Twelve-month loan-deposit spreads

14%13.3% 12.9% 12.7%

12% 11.5%

13%13.8% 14.1%

12.1% 11.9%

14.6%

16.9%

11.7%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

2001 2002 2003 2004 2005 2006 2007

USD spreads KHR spreads

Source: National Bank of Cambodia, 2007

Most banks now are profitable. Average return on equity (ROAE) increased to 16 per cent in

2007. The return on equity is uneven among different sizes of banks, in which major banks

have higher ratio between 25 per cent and 35 per cent; while small and newly established

banks with operations less than two years have very low or even negative ROE. Average

return on asset or ROAE stood at 3 per cent in 2008, an increase from 1.8 per cent in 2005

and 2.8 per cent in 2007, while the number of non-performing loans improved significantly to

3.4 per cent in 2007, down from 9 per cent in 2006.

Overall performance and profitability of Cambodian banks vary greatly. A few major banks

have outperformed other banks on all indicators (assets, loans, deposits and profitability);

many newly established banks have performed very well with the fastest growth. With a large

investment in infrastructure and their international reputation, these banks would be able to

catch up the top major banks soon. Some other banks, which mostly are specialized banks and

newcomers, have very poor performance and are struggling to survive and gain a position in

5 Riel is the currency of Cambodia. As of October 2009, 1 USD = 4170 Riel.

29

the market (See more statistics about assets, equity and profit in Annex). Such high degree of

variation in overall performance cause overall efficiency in banking sector still low.

Table 4.5: Return on Average Asset and Equity

Loan Loss Reserve/

Gross Loan (%)

ROAA (%)

ROAE (%)

2007 2006 2007 2006 2007 2006

Canadia Bank 4.60% 4.00% 5.40% 2.70% 34% 25%

Cambodia Public Bank 0.00% 0.70% 4.70% 5.80% 29% 26%

Acleda Bank Plc. 0.50% 0.60% 2.90% 3.30% 18% 13%

Foreign Trade Bank 9.50% 8.80% 4.30% 1.00% 35% 19%

Cambodian Commercial

Bank 0.00% 0.00% 4.10% 3.10% 26% 0%

Vattanac Bank 0.00% 0.00% 5.60% 5.00% 25% 18%

Union Commercial Bank 0.20% 0.30% 4.60% 2.60% 24% 14%

May Bank 0.00% 0.00% 3.70% 3.10% 17% 11%

Singapore Banking Corp 0.00% 0.10% 7.40% -0.70% 22% -3%

First Commercial Bank 0.00% 0.00% 5.10% 5.60% 15% 16%

Krung Thai Bank 0.00% 0.00% 2.70% 7.30% 8% 20%

Cambodia Mekong Bank 0.10% 0.00% 2.70% -6.60% 7% -16%

ANZ Royal Bank 0.60% 0.50% 0.10% -1.50% 2% -1%

Cambodia Asia Bank 3.10% 4.40% 1.80% 0.60% 3% 1%

Advanced Bank of Asia 3.40% 0.00% 0.40% 5.80% 1% 12%

Shinhan Khmer Bank 0.00% 0.00% -2.50% n.a. -8% n.a.

Camko Bank 0.00% 0.00% -6.40% n.a. -13% n.a.

Peng Heng S.M.E 0.60% 0.60% 9.50% 8.90% 11% 4%

Source: cited from IFC (2008)

Insurance Sector

Most indicators about efficiency in insurance sector in Cambodia are not available for our

analysis here. However, since efficiency and competition are related to large extent, the

degree of efficiency can be drawn from the magnitude of competition. As discussed in earlier

session, competition in insurance sector in Cambodia remains very weak within very small

market. Such conditions do not allow firms to exploit scale of economy and thus result in

higher cost of operation and lower profitability.

30

Chapter Five: Conclusion

Trade policy affecting financial sector has increasingly become an integral part of national

economic policy and international trade negotiation. Since financial sector market opening

can help countries build more robust and efficient financial systems, increasing number of

countries have adopted more liberal financial trade policy, unilaterally and multilaterally, as a

tool to achieve financial sector development and to stimulate economic growth. That’s why it

is found financial services become less restrictive than many other services in both regional

and multilateral trade frameworks.

Cambodia is no exception along this international trend and it imposes low restriction on both

domestic and foreign financial services suppliers. Quantitative indicator measuring trade

restrictiveness in financial services suggests that Cambodia’s financial sector is less restrictive

in both market access and national treatment. A few major prohibitive measures apply to all

service sectors. One is restriction on land ownership applicable to mode 3 and two is

limitation on the number of foreign nationals at 10 per cent of the workforce. Its financial

sector openness is driven in large extent by liberal outward-looking economic policy and

financial sector reforms that were undertaken since 1990s. Cambodia’s economic policy is on

the verge of deeper economic integration within various frameworks, bilateral, regional and

multilateral, and such tendency is likely to hasten the process of financial sector opening.

Since data on financial sector in Cambodia is limited, this study could not quantitatively

assess the casual relationship between trade liberalization and financial sector development.

Yet, having traced the development pattern of financial sector and stage of financial sector

opening, it found that trade liberalization of financial services especially under GATS

framework has played some role in strengthening Cambodia’s financial system. Not only do

depth and outreach of financial system widen, but also competition and efficiency improve

significantly. Gains from liberalization vary across sub-sectors, where it is found banking

sector grew much faster than other financial services sub-sectors including insurance. Number

of banks and their branch offices boomed over the last few years along with substantial

increase in competition and efficiency. In the same vein, we also observe gradual introduction

of new technology, innovative financial products and services, and good practices by financial

service providers in particular foreign firms. This allows us to argue that rapid progress of

31

banking sector in Cambodia is attributive to presence of foreign banks operating in more

enabling environment and less restrictive economic and financial regime.

Market-driven financial sector growth happens at the pace that regulatory frameworks and

supervisory institutions could not catch up. Although significant improvement has been

achieved in domestic reforms, supervisory capacity and regulatory frameworks are still weak.

The basic framework and the capacity for on-site inspection and offsite surveillance, as well

as a prompt corrective action system, are not yet in place; while enforcement of prudential

regulation is not yet at the desired level. Furthermore, Cambodia’s financial sector is facing

problem of lacking financial infrastructure. There is no national payment system nor proper

credit information sharing and interbank/money market for liquidity management.

Since domestic regulatory reforms and external liberalization are to high extent

complementary and mutually reinforcing, financial sector in Cambodia would benefits even

greater from right sequencing arrangements. Financial regulatory reforms, on one side, put in

place pro-market financial institutions, pro-competition regulatory frameworks, and

macroeconomic and monitory stability prior to opening up financial sectors. Financial service

liberalization, on the other side, helps accelerate reforms; encourage a more transparent

regulatory and supervisory framework; increases the incentive for better macroeconomic

policies and regulations; and enhances credibility of rules. Cambodia is on the right track in

sequencing financial sector reforms and liberalization as clearly articulated in its financial

sector development strategy 2006-2015. This strategy sets out a long-term vision and

development plans for the financial sector in order to achieve a sound market-based financial

system. The financial sector development strategy consists of key elements that basically

address major shortcomings and challenges in aspects of legal framework, financial

infrastructure, institutional capacity, and governance principles. It is expected along the

course of implementing financial sector development plan; Cambodia’s financial sector would

greatly benefits from trade liberalization in financial services.

Experiences in conducting this research suggest that there is severe shortage of in-depth study

and analysis related to financial sector in Cambodia. Financial sector policy would greatly

benefits from further research in the following areas:

Constructing time series system-wide indicators concerning breath of the financial

system, scope and coverage of financial services, competition and efficiency,

financial soundness, financial stability, financial sector supervision, and financial

system integrity.

32

Quantifying the significance and contribution of financial sector in economic

growth and development in Cambodia.

Monitoring progress of implantation of financial sector development strategy and

assessing to what extent the development plan achieve its stated objectives and

long-terms vision.

33

Bibliography:

Armendariz, P. (1997), “Leading Issues in Financial Sector Liberalization from the NAFTA

Perspective,” a paper presented at the World Bank Workshop on “Internationalization of

Financial Services”, Singapore, August 8.

Barajas, A., R. Steiner and N. Salazar (2000), “Foreign Investment in Colombia’s Financial

sector” in S. Claessens and M. Jansen(eds.), The Internationalization of Financial

Services: Issues and Lessons for Developing Countries, Boston, MA: Kluwer Academic

Press.

Bercuson, K. (1995), “Singapore: A Case Study in Rapid Development”, IMF Occasional

Paper 119, Washington, D.C.: International Monetary Fund.

Bhattacharaya, J. (1993), “The Role of Foreign Banks in Developing Countries: A survey of

the Evidence”, Cornell University, Mimeo.

Bhattacharya, A., C. Lovell and P. Sahay (1997), “The Impact of Liberalization on the

Productive Efficiency of Indian Commerical Banks”, European Journal of Operational

Research 98(2): 332-45.

Bonin, J. and I. Abel (2000), “Retail Banking in Hungary: A Foreign Affair?”, Wesleyan

University Background Paper for World Bank (2002) World Development Report 2002:

Building Institutions for Markets, Washington, DC: World Bank.

CDRI (2008), “Annual Development Review 2007-08”, Phnom Penh: Cambodia

Development Resource Institute.

Chun, B.J., X. Zhange, A. Sharma and A. Hsu (2008), “Financial Sector Blueprint for 2001-

2010”. Phonm Penh: Asian Development Bank.

Claessens, S. and T. Glaessener (1998), “Internationalization of Financial Services in Asia”,

Policy Research Working Paper 1911, Washington, DC: World Bank.

Clarke, G., R. Cull, L. d’Amato and A. Molinari (2000), “On the Kindness of Stranger? The

Impact of Foreign Entry on Domestic Banks in Argentina” in S. Claessens and M. Jansen

(eds.) The Internationalization of Financial Services: Issues and Lessons for Developing

Countries, Boston, MA: Kluwer Academic Press.

Demirguc-Kunt, A. and H. Huizinga (2000), “Determinants of Commercial Bank Interest

Margins and Profitability: Some International Evidence”, World Bank Economic

Review13 (2): 379-408.

Francois, J.F. and L. Schuknecht (1999), “Trade in Financial Services: Pro-competitive

Effects and Growth Performance”, Mimeo.

Glaessner, T. and D. Oks (1994), “NAFTA, Capital Mobiligy, and Mexico’s Financial

System”, a paper presented at the Allied Social Science Associations annual meeting,

Boston, January 3-5.

34

Goldstein, M. and P. Turner (1996), “Banking Crises in Emerging Economies: Origins and

Policy Options”, BIS Economic Paper No. 46, Basle: Bank for International Settlements.

Hoj, J., T. Kato and D. Pilat, 1995, “Deregulation and Privatization in the Service Sector”,

OECD Economic Studies 25: 38-73.

IFC (2008), “Cambodia: Financial Sector Diagnostic 2008”, Phnom Penh: International

Finance Corporation.

Juan, A. M. (2008), “Financial Services Liberalization in the WTO and PTAs” in Juan A. M.

and M. Roy (eds.), Opening Markets for Trade Services, Geneva: World Trade

Organization

Kiraly, J.B. Majer, L. Matyas, B. Ocsi, A. Sugar and E. Varhegyi (2000), “Experience with

Internationalization of Financial Service Providers – Case Study: Hungary” in in S.

Claessens and M. Jansen (eds.) The Internationalization of Financial Services: Issues and

Lessons for Developing Countries, Boston, MA: Kluwer Academic Press.

King, R. G. and R. Levine (1993), “Finance and Growth: Schumpeter Might be Right”,

Quarterly Journal of Economics, 108: 717-738.

Kono, M., P. Low, M. Luanga, A. Matoo, M. Oshikawa and L. Schuknecht (1998), “Opening

Markets in Financial Services and the Role of the GATS, Special Studies, Geneva: World

Trade Organization.

Levine, R. (1996), “Foreign Banks, Financial Development, and Economic Growth”, in C. E.

Barfield (ed.), International Financial Markets: Harmonization versus Competition,

Washington, D.C.: American Enterprise Institute Press, pp. 224-254.

Levine, R. (1997), “Financial Development and Economic Growth: Views and Agenda”,

Journal of Economic Literature, 34: 688-726.

Mattoo, A., R. Rathindran and A. Subramaniam (2001), “Measuring Services Trade

Liberalization and its Impact on Economic Growth”, Policy Research Working Paper

2655, Washington, DC: World Bank.

McFadden, C. (1994), “Foreign banks in Australia”, The World Bank, mimeo.

McGuire, G. and M. Schuele (2000), “Restrictiveness of International Trade in Banking

Services” in. C. Findlay and T. Warren (eds.) Impediments to Trade in Services:

Measurement and Policy Implications, London: Routledge.

Nicholl, P. (1997), “New Zealand’s Experience with Foreign Ownership in its Financial

System,” a paper presented at the World Bank Workshop on “Internationalization of

Financial Services”, Singapore, August 8.

Pak, S., H. Thy, and M. Biallas (2008), “Cambodia Financial Sector Diagnostic 2008”,

Phonm Penh: International Finance Cooperation.

RGC (2007), “Financial Sector Development Strategy 2006-2015”, Phnom Penh: Royal

Government of Cambodia

Saing C. H. (2008), “Service Trade Liberalization and Growth in GMS: Opportunity and

Needs, Phnom Penh: Cambodia Development Resource Institute.

35

Tamirisa, N., P. Sorsa, G. Bannister, B. McDonald, and J. Wieczorek (2000), “Trade Policy in

Financial Services”, Working Paper WP/00/31, Washington D.C: International Monetary

Fund.

Torrell, H.S. (1986), “The role of Foreign Banks in Domestic Banking Markets”, in. H. Cheng

(eds.) Financial Policy and Reform in Pacific-Basin Countries, Lexington: Lexington

Books.

WB and IMF (2005), “Financial Sector Assessment Handbook”, Washington D.C: World

Bank and International Monetary Fund.

36

Annexes:

Table A.1: Total Assets, Equity and Profit

Total Assets ($ mil.) Total Equity ($ mil.)

Total Net Profit

($ mil.)

2007 2006 2007 2006 2007 2006

Tier one

Canadia Bank 552.78 380.64 84.56 64.11 25.21 15.8

Cambodia Public Bank 557.23 245.99 87.19 44.82 18.92 11.81

Acleda Bank Plc. 468.19 225.14 62.65 47.7 10.19 6.05

Tier Two

Foreign Trade Bank 217.44 224.12 30.03 23.45 9.47 4.35

Cambodian Commercial

Bank 160.67 129.89 26.3 19.91 5.94 4.47

Vattanac Bank 129.44 71.85 25.14 20.08 5.61 3.59

Union Commercial Bank 119.38 105.9 23.04 19.23 5.14 2.71

May Bank 142.75 84.93 26.41 23.11 4.2 2.61

Singapore Banking Corp 48.27 37.7 20.61 8.58 3.18 -0.25

First Commercial Bank 59.03 52.73 20.36 18.61 2.84 2.93

Krung Thai Bank 70.75 50.86 19.88 18.77 1.62 3.7

Tier three

Cambodia Mekong Bank 61.3 27.33 24.76 11.33 1.21 -1.8

ANZ Royal Bank 552.69 207.58 33.1 15.23 0.53 -3.08

Cambodia Asia Bank 31.81 22.47 13.9 13.84 0.48 0.12

Advanced Bank of Asia 40.22 27.94 17.76 13.19 0.14 1.61

Shinhan Khmer Bank 36.04 n.a. 11.91 n.a. -0.92 n.a.

Camko Bank 23.37 n.a. 11.34 n.a. -1.49 n.a.

Peng Heng S.M.E 5.05 4.23 4.26 3.93 0.44 0.17

Note: Banks falls into three different levels or tiers based on profitability and overall performance. Tier 1 is

the best performance, while tier 3 is the lowest performing banks.

Source: cited from IFC (2008)

37

Table A.2: Cambodia’s Service Schedule for Financial Sector

Modes of supply: 1) Cross-Border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons

Sector or sub-sector Limitations on market access Limitations on national treatment Additional commitments

A. HORIZONTAL COMMITMENTS APPLICABLE TO SECTORS LISTED IN THE SECTORAL PART OF THE SCHEDULE

Subsidies (3), (4) Unbound for subsidies, including

for research and development.

Tax measures (1), (2), (3) None with respect to taxes

Land (3) Non-Cambodian natural and

juridical persons may lease but not

own land.

Acquired rights The conditions of ownership, management, operation,

juridical form and scope of activities as set out in a

license or other form of approval establishing or

authorizing the operation or supply of services by an

existing foreign service supplier, will not be made more

restrictive than those in existence as of the date of

Cambodia’s accession to the WTO.

Investment incentives (3) Investors, seeking incentives under the provisions of

the Law on Investment, shall have the obligation to

provide adequate and consistent training to

Cambodian staff, including for promotion to senior

positions.

(3) None

38

Presence of natural persons (4) Unbound except for measures concerning the entry

and temporary stay of a natural person who falls in

one of the following categories:

Business visitors

A natural person who:

- enters Cambodia for the purposes of participating in

business meetings, establishing business contacts

including negotiations for the sale of services and/or

other similar activities;

- stays in Cambodia without receiving income from

within Cambodian sources;

- does not engage in making direct sales to the general

public or supplying services.

Entry visa for business visitors shall be valid for a period

of 90 days for an initial stay of 30 days, which may be

extended.

(4) Unbound, except for measures

affecting the categories referred to

under market access.

39

Persons responsible for setting up of a commercial

establishment:

Persons working in an executive or managerial position,

receiving remuneration from an entity as defined below,

who are responsible for the setting up, in Cambodia, of a

commercial presence of a service provider of a Member,

that will support employment of persons described in a, b,

and c below. The subject persons are not subject to a

maximum duration of stay.

Intra-Corporate Transferees

Natural persons who have been employed by a juridical

person of another member for a period of not less than 1

year and who seek temporary entry to provide services

through a branch, subsidiary and affiliate in Cambodia

and who are:

a) Executives: without requiring compliance with labour

market tests, persons within an organization who

primarily direct the management of the organization,

exercise wide latitude in decision-making, and receive

only general supervision or direction from higher-level

executives, the board of directors, or shareholders of the

business. Executives would not directly perform tasks

related to the actual supply of a service or services of the

organization.

40

b) Managers: without requiring compliance with labour

market tests, natural persons employed by a juridical

entity and who possess knowledge at an advanced level

of expertise or proprietary knowledge of a juridical entity

product, service, research, equipment, techniques, or

management, and who primarily direct the organization

or a department of the organization; supervise and control

the work of other supervisory, professional or managerial

employees; have the authority to hire and fire or

recommend hiring, firing or other personnel actions; and

exercise discretionary authority over day-to-day

operations. They do not include first-line supervisors,

unless the employees supervised are professionals, nor do

they include employees who primarily perform tasks

necessary for the supply of the service.

c) Specialists: Natural persons, within an organization

who possess knowledge at an advanced level of

continued expertise and who possess proprietary

knowledge of the organization's services, research

equipment, techniques, or management.

Temporary residency and work permit is required for the

natural persons in the categories defined under intra-

corporate transferees. Such permits are issued for two

years and may be renewed annually up to maximum of

total five years.

Modes of supply: 1) Cross-Border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons

41

Sector or sub-sector Limitations on market access Limitations on national treatment Additional commitments

B. SPECIFIC COMMITMENTS--FINANCIAL SERVICES

1. All insurance and insurance-related services

(a) Life insurance services

(CPC 81211)

(1) Natural or juridical person can enter into

contract only with the insurance companies

licensed to carry out insurance business in the

Kingdom of Cambodia

(2) None

(3) None

(4) Unbound, except as indicated in the horizontal

section

(1) None

(2) None

(3) None

(4) Unbound, except as indicated in the

horizontal section

(b) Non-life insurance services (CPC

8129)

(1) None for marine, aviation, and transport

insurance from 1 January 2009, or once a law

has been passed, the appropriate regulations in

place and a local firm authorized, whichever

comes first.

Until the conditions above are met, marine,

aviation and transport insurance services may

be supplied by insurance companies licensed

to carry out insurance business in the

Kingdom of Cambodia.

For all other non-life insurance services,

natural or juridical persons can enter into

contract only with the insurance companies

licensed to carry out insurance business in the

Kingdom of Cambodia.

(2) None

(3) None

(4) Unbound, except as indicated in the horizontal

section

(1) None

(2) None

(3) None

(4) Unbound, except as indicated in the

horizontal section

42

Modes of supply: 1) Cross-Border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons

Sector or sub-sector Limitations on market access Limitations on national treatment Additional commitments

(c) Reinsurance and retrocession (CPC

81299)

(1) None, except companies must reinsure 20% of

their risk in Cambodia Re until 31 December

2008. Insurance contracts of total sum

insured of less than or equal to USD 500,000

must be reinsured locally until 31 December

2008. Thereafter, None

(2) None

(3) None, except companies must reinsure 20% of

their risk in Cambodia Re until 1 January

2008. Thereafter, None.

(4) Unbound, except as indicated in the horizontal

section.

(1) None

(2) None

(3) None

(4) Unbound, except as indicated in the

horizontal section.

(d) Services auxiliary to insurance

(including broking and agency

services)

(CPC 8140)

(1) None

(2) None

(3) None

(4) Unbound, except as indicated in the horizontal

section.

(1) None

(2) None

(3) None

(4) Unbound, except as indicated in the

horizontal section.

43

Modes of supply: 1) Cross-Border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons

Sector or sub-sector Limitations on market access Limitations on national treatment Additional commitments

2. Banking and other financial services

The commitments for subsectors (a), (b)

and (d) refer to commercial banking

only.

(a) Acceptance of deposits and other

repayable funds from the public

(CPC 81115 – 81119)

(b) Lending of all types, including,

inter alia, consumer credit,

mortgage credit, factoring and

financing of commercial transaction

(CPC 8113);

(d) All payment and money

transmission service, including

credit, charge and debit cards,

traveller cheques and bankers drafts

(CPC 813396)

(1) None, except deposits from the public must be

reinvested in Cambodia

(2) None

(3) None, except only permitted through

authorized financial institutions as banks

(4) Unbound, except as indicated in the horizontal

section.

(1) None

(2) None

(3) None

(4) Unbound, except as indicated in the

horizontal section.

The commitments for subsectors (c) and

(e) refer to commercial banking only.

(c) Financial leasing

(e) Guarantees and commitments

(1) Unbound

(2) None

(3) Unbound until related laws and regulations

are established

(4) Unbound, except as indicated in the horizontal

section.

(1) None

(2) None

(3) None

(4) Unbound, except as indicated in the

horizontal section.

6 According to Services sectoral classification list, this refers to only part of the total range of activities covered by the CPC concordance.

44

Modes of supply: 1) Cross-Border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons

Sector or sub-sector Limitations on market access Limitations on national treatment Additional commitments

(f) Trading for own account or for

account of customers, whether on

an exchange, in an over-the-counter

market or otherwise, the following

(A) money market instruments

(including cheques, bills, certificates

of deposits);

(B) foreign exchange

(C) derivative products including,

but not limited to, futures and

options;

(D) exchange rate and interest rate

instruments, including products such

as swaps, forward rate agreements;

(E) transferable securities;

(F) other negotiable instruments

and financial assets, including

bullion

(g) Participation in issues of all kinds

of securities, including underwriting

and placement as agency (whether

publicly or privately) and provision

of services related to such issues;

(h) Money broking;

(i) Asset management, such as cash or

portfolio management, all forms of

collective investment management,

pension fund management,

custodial, depository and trust

services;

(j) Settlement and clearing services for

(1) Unbound

(2) None

(3) Unbound for subsectors (f) – (l), until the

Government of Cambodia determines what

types of entities can conduct these services,

the related laws and regulation are established,

and such business is authorized by the

government or other relevant designated

authority.

(4) Unbound, except as indicated in the horizontal

section.

(1) None

(2) None

(3) None

(4) Unbound, except as indicated in the

horizontal section

45

Modes of supply: 1) Cross-Border supply 2) Consumption abroad 3) Commercial presence 4) Presence of natural persons

Sector or sub-sector Limitations on market access Limitations on national treatment Additional commitments

financial assets, including

securities, derivative products, and

other negotiable instruments;

(k) Provision of financial information,

and financial data processing and

related software by suppliers of

other financial services

(l) Advisory, intermediation and other

auxiliary financial services on all

the activities listed in subparagraphs

(v) through (xv), including credit

reference and analysis, investment

and portfolio research and advice,

advice on acquisitions and on

corporate restructuring and strategy.