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Govt to 'stay firm' on cash reserve measures

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Prime Minister Hun Sen tells business leaders that minimum requirements are needed to insulate the banking sector from the global financial meltdown

Photo by: AFP

Hun Sen chairing a meeting with businessmen and investors at the Council for the Development of Cambodia on Friday.

PRIME Minister Hun Sen said the government will strictly enforce new rules requiring banks to maintain higher minimum cash reserves in an effort to prevent the global market crisis from hitting local financial institutions.

The comments were made Friday at the Government-Private Sector Forum at the offices of the Council for the Development of Cambodia.

The biannual meeting sees eight business working groups meet with Hun Sen in talks to set policy in a number of fields.

The National Bank of Cambodia in June announced new measures that doubled cash reserves from eight percent to 16 percent.

 The move was aimed at increasing bank liquidity and curtailing loan growth in the country.

"I would like to inform you that ... even institutions such as the World Bank and the International Monetary Fund are not sure what will happen and how long the crisis will persist. So, I will still stay firm on these [banking] measures," Hun Sen said.

His comments came in response to a request during the forum by Charles Vann, deputy chairman of the forum's banking and financial services subcommittee, for the government to cancel or curb the measures in a bid to free up more money.

National Bank Director General Tal Nay Im said the bank instituted the measures as a hedge against global market volatility and possible runs on local financial institutions.

Safeguarding banks

The minimum requirements are also hoped to rein in spiralling inflation that topped out at around 25 percent earlier this year before starting to ease on falling global oil prices.

Commercial bank reserves were raised from US$13 million to $37.5 million, while specialised banks rose from $2.5 million to $7.5 million.

Banks will have until 2010 to comply with the new reserve measures, Tal Nay Im said, adding that the National Bank has also restricted lending on real estate to no more than 15 percent of the total loan portfolio.

Hun Sen said the banking sector needed to be protected from failure, which would impact many other parts of the economy.

"We should not forget that if any bank collapses, it will cause collapses in many other places," he said.

"These measures are to ensure that depositors will not be affected. So, I hope bankers understand us because we are in the same boat. If the boat capsizes, all will die together."

Cambodian banks have been largely insulated from the global banking crisis as most of their investments and loan exposure are local.

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