The National Bank of Cambodia (NBC). Facebook
Financial industry players were on cloud nine after the National Bank of Cambodia (NBC) announced it would keep the current seven per cent reserve requirement ratio (RRR) until June 30 to ensure liquidity in the sector to fund more loans and to crank up economic activity.
RRRs are central bank regulations that set a minimum amount of cash that financial institutions must hold in reserve. The Cambodian RRR in foreign and domestic currency were 12.5 per cent and eight per cent, respectively, until the NBC reduced both to seven per cent in March last year.
The decision came after a February 10 meeting of the NBC’s Monetary Policy Committee – chaired by central bank governor Chea Chanto – that reviewed global economic updates, Cambodian macro-economic and financial sector progress and challenges, as well as future monetary policy actions.
Shin Chang-moo, president and CEO of South Korean-owned Phnom Penh Commercial Bank Plc (PPCBank), underscored the enduring value of the trimmed RRR.
The revised RRR has supplied much-needed liquidity and provided a great deal of support for commercial banks and microfinance deposit-taking institutions (MDIs), which he stressed were active participants of the central bank’s loan restructuring programme.
“As the recovery of [the] economy and banking sector is not very promising in early 2021, again the NBC’s decision to extend the [RRR reduction] until the end of the first half was very responsive to the market demand and [general] consensus.
“Even in the case of a V-shape recovery of the national economy, the banking sector will need extra liquidity to support the recovery.
“When the financial market goes back to normal, I wish the RRR policy as a whole to be reviewed and revised to be more market-friendly and relevant to policy objectives,” Shin said.
Say Sony, executive vice-president of PRASAC Microfinance Institution Plc, also welcomed the NBC’s decision, saying the move will deliver additional “financial space” for institutions to increase loans to customers.
“We thoroughly appreciate the NBC’s decision to hold the RRR at seven per cent in both US-dollar and Cambodian-riel denominations until the first half of this year.
“The extension is a key driver of liquidity that enables banks to better manage their lending processes, which when all is said and done will pitch in with Cambodia’s economic recovery from its Covid-19 doldrums.
“By the same token, as long as the economy hasn’t made a full recovery out of its Covid-19 rut and the coronavirus remains, banks will have to lend a vital hand in restoring the economy. The extension of the [RRR reduction] will help banks do just that,” he said.
In Channy, president and CEO of ACLEDA Bank Plc, recently said that through the NBC as the regulator, the government has introduced effective and up-to-date legal mitigation measures that ensure sufficient capital for operators in the sector.
“As part of government regulatory easing measures for the banking sectors, the capital reserve requirement was reduced to seven per cent. It is very important that we have our freed-up cash for additional use – amounting to billions of dollars incorporated into growth in 2020,” he said.
Total assets in the Kingdom’s banks and microfinance institutions (MFIs) grew to $59.4 billion at the end of last year, increasing 15.7 per cent from the end of 2019, according to the NBC’s 2020 annual report.
Outstanding loans in banks and MFIs grew by 14.8 per cent to $37.3 billion by the end of last year, while deposits increased by 15.4 per cent to $33.8 billion.
