Subscribe Search

Search form

Logo of Phnom Penh Post newspaper Phnom Penh Post - Financial tool tweaked to sharpen interbank market

Financial tool tweaked to sharpen interbank market

Financial tool tweaked to sharpen interbank market

Cambodia’s central bank has decreased the minimum-investment threshold on negotiable certificates of deposit (NCDs) and will no longer offer term-deposit accounts in an effort to kickstart the sputtering interbank lending market.

“We needed to make NCDs more convenient in terms of maturity and face value,” Chea Serey, deputy-general of the National Bank of Cambodia (NBC), said yesterday.

Her comments follow a release on October 30 in which the NBC said it would lower the minimum face value of NCDs tenfold effective November 1. The minimum 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.

“NCDs with too long a maturity and too big an amount may not be attractive for [financial institutions] or convenient for their treasury management,” Serey said.

“The adjustment is expected to further increase the holding [of NCDs] and to encourage more secondary markets.”

The central bank introduced NCDs in 2013 in a bid to establish a formal interbank market to replace the high-risk informal interbank lending system that financial institutions were using to overcome temporary liquidity shortages.

However, banks have not widely adopted the short-term interest-bearing certificates, preferring to hold onto their surplus liquidity or seek higher yields.

Serey said while financial institutions previously had a choice of investing in NCDs or fixed-income term deposits at the central bank, the new measures will encourage a shift toward more liquid investments.

“Banks that hold NCDs can trade them in the secondary market, while fixed deposits can’t be traded,” she noted.

“By closing the [option for] fixed deposits – but allowing existing ones to reach maturity – we expect to see more investment in NCDs.”

So Phonnary, executive vice president of Acleda Bank, voiced support for the new measures, which she said should stimulate interbank market growth. NCDs, which come in tenors of between two weeks and one year, can be traded among financial institutions and are redeemable with interest at maturity.

“We can use it as a negotiable instrument when we need more funds for expansion by using this certificate as [collateral],” Phonnary said.

In a June report, investment firm Mekong Strategic Partners estimated that at least $1 billion in surplus liquidity was sitting idle in Cambodia’s banking system and could be unlocked if the central bank implemented a more effective interbank lending mechanism.

Its authors proposed that the central bank mandate that all commercial banks hold a portion of their 12.5 per cent deposit reserve requirement as NCDs. This would free up liquidity and encourage banks to utilise the secondary interbank market.

Stephen Higgins, managing partner at Mekong Strategic Partners, said the central bank’s latest measure “will probably help the margins, but to really drive take-up of NCDs, the NBC needs to make it compulsory to hold them, up to a certain per cent of a bank’s reserve requirement”.

Current interest rates on riel-denominated and dollar-denominated NCDs with six-month maturities stand at 1.8 per cent and 0.4 per cent, respectively. Six-month term deposits at NBC fetch 1.2 per cent for riel deposits, and 0.27 per cent for US dollar deposits.



  • Kak Channthy, Cambodian Space Project frontwoman, killed in crash at 38 [Updated]

    Updated 5:05pm, Tuesday, March 20, 2018 Kak Channthy, frontwoman of popular The Cambodian Space Project, was killed Tuesday morning in a traffic accident in Phnom Penh. She was 38. Channthy, the internationally recognised singer-songwriter also known as “Srey Thy”, was reportedly travelling in a tuk-tuk on the city's

  • Australian police investigating death threat against Kem Ley's widow

    Updated: 10:17am, Friday March 23, 2018 Australian authorities on Thursday confirmed they have launched an investigation into a crudely written death threat sent tothe family of slain political analyst Kem Ley and Victoria state MP Hong Lim. The typed letter, reported to Victoria police last week, is

  • Apparel groups including H&M and Gap urge Cambodia garment industry reform, seek meeting with Hun Sen

    A group representing some of the largest apparel brands in the US and Europe – including Gap, H&M and ASOS – expressed “growing concern” on Tuesday over several controversial labour laws and ongoing court cases against unionists described as restrictive and unjust. In an open letter

  • Cambodia, states clash at UN session

    Cambodia traded shots with the international community in a heated exchange at the UN Human Rights Council in Geneva on Thursday evening, with states condemning the Kingdom’s ongoing crackdown on the political opposition and civil society, and an increasingly agitated Cambodia accusing member states