Central Bank Encourages Interbank Market

Over two years after launching Negotiable Certificates of Deposit (NCDs), a security meant to encourage interbank lending and reduce the role of the state in the financial sector, the National Bank of Cambodia (NBC) announced new measures to catapult the effort on Friday.

In late 2013, in a bid to reduce the amount of surplus funds deposited with the NBC, it began issuing NCDs, which can be sold by cash-strapped banks to banks with high liquidity, who can then cash them in with interest upon maturity.

In order to encourage movement in the still-stagnant interbank market, the NBC announced in a statement on Friday that the minimum investment to start an NCD would be drastically lowered and fixed-term deposits with the state-run bank would no longer be offered as of November 1.

“By closing the fixed deposits (but allow existing ones to reach maturity), we expect to see more investment into NCD,” NBC

Director-General Chea Serey said in an email yesterday. “But at the same time we need to make NCD more convenient in term of maturity and face value.”

To do so, the central bank has lowered the minimum cost of creating both riel and U.S. dollar denominated NCDs by 90 percent, to 200 million riel and $50,000, respectively, according to the statement.

So Phonnary, executive vice president at Acleda Bank, said the move would increase activity in an interbank market that is currently “not so active.”

“Now, banks that have a small amount of money can also use [NCDs],” she said.

Hiroshi Suzuki, chief economist at Business Research Institute for Cambodia, said the changes by the NBC would likely facilitate a more robust banking industry.

“This is very necessary for much more effective and efficient financial sector,” he said via email. “NCD is one of the most important tool for this objective.”

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