Thursday, January 10, 2008

Banking industry country risk assessment on Cambodia assigned Group 10




Standard & Poor's Ratings Services said that Cambodia's banking industry has been categorized in Group 10 in its Banking Industry Country Risk Assessment (BICRA). This reflects the country's nascent stage of development with deficiencies in the structural, institutional, and legal frameworks, it said in a report titled "Banking Industry Risk Analysis: Cambodian Banks Poised For Growth, But Structural And Institutional Vulnerabilities Exist."

Other countries in Group 10 are Bolivia, Jamaica, Ukraine, and Venezuela. (For a list of Asian BICRAs see "Banking Industry Risk Analysis: Asian Banking Systems," published April 23, 2007. For an introduction to BICRAs see "Banking Industry Country Risk: These Are The Good Old Days," published June 6, 2006.)

Cambodia's economic prospects are good due to political stability and liberal economic and trade policies. As a result, banks in Cambodia are poised to benefit from strong growth opportunities as the economy gathers momentum. However, the Cambodian banking system is fragmented and lacks financial depth with poor access to credit. There are a wide variety of structural distortions that prevent the optimization of financial intermediation by banks in Cambodia. Key ones are inadequate legal framework for secured transactions, developing institutional framework, and information asymmetry arising from poor disclosure standards.

As Cambodia transitions to a market economy and credit growth picks up, its main challenge is to rectify these deficiencies. Cognizant of this, the country's central bank, National Bank of Cambodia, has taken steps to restore confidence and improve banking and business regulations articulated in the Financial Sector Development Blueprint. The recent entry of international players has also brought a much-needed infusion of best practices and expertise. All said, the reform process is in its early stages and proper execution is crucial.

The BICRA reflects the strengths and weaknesses of a country's banking system relative to those in other countries. BICRAs classify countries into one of 10 groups ranging from the strongest banking system (Group 1) to the weakest (Group 10) from the perspective of country risk. Standard & Poor's analyzes the credit standing of financial institutions in the context of broad economic, regulatory, legal, and competitive environments in which they operate. This sectoral analysis is integral to estimating the probability of a banking crisis, the potential severity of fallout in the event of a crisis, and the fundamental strength and creditworthiness of individual financial institutions.

The report is available to subscribers of RatingsDirect, the real-time Web-based source for Standard & Poor's credit ratings, research, and risk analysis, at www.ratingsdirect.com. If you are not a RatingsDirect subscriber, you may purchase a copy of the report by calling (1) 212-438-9823 or sending an e-mail to research_request@standardandpoors.com. Ratings information can also be found on Standard & Poor's public Web site at www.standardandpoors.com; under Credit Ratings in the left navigation bar, select Find a Rating, then Credit Ratings Search. Members of the media may request a copy of this report by contacting the media representative provided.

Re-disseminated by The Asian Banker

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