NBC opens latest riel bid

KHMER TIMES
MAY KUNMAKARA

The central bank requires financial institutions to have 10 percent of transactions in Khmer riel by 2019. Reuters

The National Bank of Cambodia (NBC) yesterday opened the bidding on the fourth auction of the Liquidity-Providing Collateralized Operation (LPCO) since October, the results of which will be announced on January 17.

The NBC has offered a total of 40 billion riel (about $10 million) at each auction with an interest rate of three percent to financial institutions needing liquidity in riel, however the number of participants at each auction has been low.

Only 12 billion riel (about $3 million) was released at the first auction on October 25. The second bidding on November 23 saw 8.4 billion released and even less – just eight billion – was released at the third auction on December 21.

Industry insiders and players said the slow progress of bidding is a result of surplus riel currency at financial institutions so they have no interest in bidding for more.

Hout Ieng Tong, president of the Cambodia Microfinance Association, told Khmer Times yesterday that most microfinance associations (MFIs) have their own reserve of local currency for business transactions, resulting in low participation from MFIs during the auction.

However, he supported the central bank’s efforts in promoting the use of local currency.

“Actually, we are quite interested in participating in the bidding but I think some institutions have enough liquidity in local currency for their business so they don’t need to seek more.

“If they need, they will participate in the bidding because it’s good to promote the use of local currency,” he said.

Mr. Ieng Tong, who is also general manager of Hattha Kaksekar Limited, said seven percent of business transactions at Hattha Kaksekar are now in riel, a figure he hopes will rise.

In Channy, president and group CEO of Acleda Bank, also said his bank now has enough local currency to meet the demands of customers.

“Right now we don’t need more riel because we have enough for transactions. Once we have a shortage, we will join the bidding to meet our demand,” he said.

NBC director-general Chea Serey said that a lack of understanding was causing low participation and as a result, the central bank has conducted several workshops for the industry.

The second reason, she said, was because the NBC announced the initiative quite late last year after many financial institutions had already closed their balance sheets and finished their business plans for this year.

Ms. Chea Serey added a third reason, which was that financial institutions may have had a pre-commitment to using more local currency and thus had sufficient liquidity in riel.

“The amount won is smaller than the amount available for auction. We did anticipate such behavior at the beginning of the operation. Our survey suggests that there is plenty of interest in the new instrument especially since the NBC requires financial institutions to have 10 percent of transactions in Khmer riel by 2019,” she said

“I still think it is important to allow the industry to adjust and get familiarized with the operation. As mentioned earlier, this kind of operation needs time to be able to really influence the markets.”