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Banking liquidity tool moves to weekly issuance

The National Bank of Cambodia in Phnom Penh, pictured earlier this year.
The National Bank of Cambodia in Phnom Penh, pictured earlier this year. Heng Chivoan

Banking liquidity tool moves to weekly issuance

Cambodia's central bank yesterday launched a weekly issuance of Negotiable Certificate of Deposits (NCD) with selling scheduled for every Wednesday – a move aimed at developing the interbank lending market by promoting a secondary market for the short-term interest-bearing certificates.

The National Bank of Cambodia (NBC) first introduced NCDs in late 2013 with the objective of providing an instrument for banks and financial institutions to better manage their liquidity.

NBC Director-General Chea Serey said demand for NCDs has been growing and the central bank aims to push interbank lending to the next level by fostering the development of a secondary market.

“The weekly issuance of NCDs will enable banks and financial institutions to plan and manage their liquidity more effectively, and also contributes to the development of the interbank market in Cambodia,” she said.

Serey explained that the decision of the NBC to offer the certificates on a weekly basis would benefit financial institutions by reducing the transaction costs for NCD issuance. It would also encourage banks and financial institutions to trade the certificates with each other when the NBC is not issuing them.

In addition, it would increase the NBC’s monetary control by allowing it to effectively inject liquidity whenever there is a shortage on the market.

According its 2015 annual report, the central bank issued 1,243 NCDs as of end-2015, of which 289 NCDs were denominated in riel, equivalent to $736.6 million, and 945 were denominated in US dollars, totalling $3.7 billion.

In November 2015, the NBC decreased the minimum-investment threshold on NCDs while closing the option for banks to hold fixed-income term deposits at the central bank. The threshold on riel-denominated certificates was dropped from 2 billion riel to 200 million riel, while the minimum on US dollar certificates was reduced from $500,000 to $50,000.

Rath Yumeng, executive vice-president and group chief treasury officer of Acleda Bank, said the central bank’s switch to selling NCDs once a week would require the bank to manage its cash flow more effectively.

However, he said the secondary market it promotes would provide more opportunities for local financial institutions to obtain funds from one another using collateral monitored by the NBC.

“It provides a good opportunity for us to find sources of funds from each other locally, and between one financial institution and another,” he said.

Yumeng said there were advantages to expanding beyond the primary market, and the central bank’s move was a positive one aimed at deepening the interbank lending market.

“The purpose of promoting this secondary market is to allow bank to bank lending when there is a shortage or surplus of funds,” he said. “If we just buy the NCD from NBC, we would not have opportunity to meet directly with other financial institutions.”

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