NBC’s New Liquidity Plan

KHMER TIMES
MAY KUNMAKARA

The National Bank of Cambodia wants to promote liquidity in riel throughout the country. KT/Fabien Mouret

The National Bank of Cambodia (NBC) moved to enhance and manage the liquidity of banks and financial institutions by introducing weekly issuance of negotiable certificate of deposits (NCDs) – a step towards the development of interbank lending in Cambodia.

According to an NBC announcement released last Monday, the initiative of issuing weekly NCDs aims to back its monetary policy and promote the development of interbank lending as well as make it easier for the management and liquidity investment of banks and financial institutions.

“The NBC will issue NCDs to banks and financial institutions once a week on every Wednesday and will start implementing on October 5,” the announcement said.

Chea Serey, director-general of the NBC, told Khmer Times that NCDs were introduced in late 2013 with the objective of providing banks and financial institutions an instrument to better manage their liquidity.

She said banks and financial institutions would now have to buy NCDs on a regular and specific interval.

“In the past, NBC issued NCDs in response to market demand. This practice aims at encouraging banks and financial institutions to buy NCDs in the first phase. As the demand for NCDs has grown, we had to move another level forward to develop the NCDs’ secondary market in line with our action plan,” she added.

Ms. Serey said the issuance of NCDs on a weekly basis would likely reduce operational and transaction costs on the issuance and buying of NCDs for banks, financial institutions and the NBC.

She added that it would also encourage banks and financial institutions to trade with each other when the NBC is not issuing NCDs, and the NBC could conduct monetary operations more effectively by injecting liquidity when there is a shortage on the market or by sterilizing when there is a surplus.

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

“We believe that with the new measure there will be increased demand for NCDs, which is an appropriate instrument for liquidity management and will develop the interbank market of NCDs.”

On September 23, the NBC also announced a plan to launch a Liquidity-Providing Collateralized Operation (LPCO) on October 18 to provide liquidity in riel, in response to the need of banks and microfinance institutions who are concerned parties in the implementation of the country’s monetary policy.