Logo of Phnom Penh Post newspaper Phnom Penh Post - NBC acts on interbank loans

NBC acts on interbank loans

NBC acts on interbank loans

A financial instrument that will help to formalise interbank lending in Cambodia is set to launch “very soon”, the central bank has said.

Interbank markets, where institutions borrow and lend to each other largely to either maintain required reserves or profit from an excess of them, are common in most developed economies.

But Cambodia has no official market in place.
Nguon Sokha, director general and spokeswoman at the National Bank of Cambodia, told The Post that a tradable security is in the works that banks could use as collateral when lending to each other.

The NBC will issue the securities with a fixed interest rate to subscribers, namely commercial banks, who should first open securities accounts with the central bank.

The NBC will then act as custodian and handle registration and ownership transfer at the holder’s request.
She was unwilling to go into more detail as that instrument was still being developed, but the NBC expects it to launch in the next few months.

“It will help banks even more in terms of liquidity management,” she said.
Some framework is already in place to facilitate interbank lending, after a regulation on repo master agreements issued in October 2009.

These agreements involve one party selling securities to another with the understanding that the seller will later buy back the securities at a higher price.

In effect, the seller is borrowing money from the buyer with interest. With that in place, the NBC is taking next steps to make the interbank market a reality.

“NBC is now working on operational issues for effective implementation,” Nguon Sokha said, “especially [information technology] support, bookkeeping and registry. This will take a few months.”

Reaction from banks that operate in Cambodia has been extremely positive.

“It is the single most important step in getting an interbank lending market started,” said Stephen Higgins, chief executive officer of ANZ Royal Bank, of creating negotiable securities.

“If that’s in place, I’ll give cash to almost any bank in the market because my security then is central bank paper.”

ACLEDA Bank CEO and President In Channy agreed.

“It’s a good move if the NBC can have that,” he said.

An interbank market would give the NBC a lot more control over the country’s monetary policy, said ANZ’s Higgins.

Banks would publish on a daily basis the rates at which they’re willing to borrow and lend, he said, and the central bank could observe and work to change those rates to the betterment of the economy as a whole.

“And generally make the market more sophisticated,” he said.

The absence of a formal system has not been the only thing preventing Cambodian banks from lending to one another.
A Lack of trust among them has also played a key part, ACLEDA’s In Channy said.

Lending banks couldn’t assume that they would be repaid.

But with the central bank backing up these loans, that should no longer be a problem.

“It’s much more than trust because the [security] is a guarantee,” he said.

MOST VIEWED

  • Cambodia unveils new quarantine regulations

    The government has modified Covid-19 quarantine requirements, shortening the duration for, among others, Cambodian officials, foreign diplomats and delegations, investors and inbound travellers in general. According to an official notice signed by Minister of Health Mam Bun Heng late on October 16, quarantine length for Cambodian

  • Cambodia sets new Covid-19 quarantine rules

    The government has modified Covid-19 quarantine requirements, shortening the duration for, among others, Cambodian officials, foreign diplomats and delegations, investors and inbound travellers in general. According to an official notice signed by Minister of Health Mam Bun Heng late on October 16, quarantine length for Cambodian

  • Hun Sen: Cambodia set to fully reopen

    Prime Minister Hun Sen concludes that the October 5-7 Pchum Ben public holiday, during which many people either flocked to their hometowns for family reunion or gathered at tourist attractions across the country, has not caused an outbreak of Covid-19. In a special address to

  • Cambodia resumes issuance of tourist visas

    The Ministry of Foreign Affairs and International Cooperation has announced the resumption of its tourist visa and visa exemption programme after a long hiatus due to the Covid-19 pandemic. In a letter dated October 20 and addressed to foreign embassies and consulates, foreign minister Prak Sokhonn

  • S’ville set to turn into ‘second Shenzhen’

    The Ministry of Economy and Finance has awarded a master plan consultancy contract to top Chinese institute for the development and transformation of Preah Sihanouk province into a “Model Multi-Purpose Special Economic Zone”, Southeast Asia’s next logistics and resort hub and innovation centre. The

  • Health ministry issues SOP for travellers

    The Ministry of Health released their official Standard Operating Procedures (SOP) on October 20 for all travellers to Cambodia, with the specific instructions varying according to whether the traveller is fully vaccinated, partially vaccinated or unvaccinated. The SOP document is essentially identical to the updated quarantine