The National Bank of Cambodia has created an approximately $100 million short-term loan fund for local banks to ensure they have cash on hand if needed, a Ministry of Finance official said Monday.
“When [the global economic] crisis started, the government had to make available these funds in case they were needed for liquidity purposes,” Finance Ministry Secretary General Hang Chuon Naron said Monday on the sidelines of a signing ceremony for the country’s forthcoming stock exchange.
The loan fund will help banks that might face short-term shortages in liquidity, particularly due to high levels of withdrawals, Hang Chuon Naron said.
“This is designed to ensure investors’ confidence,” he said, adding that instability in Thailand last year caused depositors there to withdraw their money, leaving banks with little cash on hand.
The loan fund, approved in a Jan 20 directive by the NBC, offers loans for up to one month. No bank has yet required a loan, Hang Chuon Naron added.
According to the NBC directive, though there is $100 million available , banks can only borrow up to half of their foreign currency that is held in reserve at the national bank. With the NBC`s current reserve rate set at 12 percent, that would allows for banks to borrow just 6 percent of a their reserves. Information on individual banks` foreign reserves at the NBC was not available on Monday.
The IMF released a report last month that said some of the country’s leading banks were facing a high risk of non-performing loans due to over exposure to the real estate market, which has plummeted in value in the past several months.
Hang Chuon Naron, however, denied that a troubled banking sector had forced the government to make the loan fund available. If it had been necessary, the NBC would have considered such loans even earlier, he said.
John Brinsden, vice chairman of Acleda Bank, described the policy as a common one around the world for central banks.
“It’s absolutely the right thing to do. It’s what central banks the world over are suppose to do,” he said.
Often banks require short-term loans because over a period of a few days a bank’s outgoing cash could be considerably less than its incoming cash, he said. But the problem clears up quickly as cash flow changes, he said.
Typically around the world banks are unwilling to go “hat in hand” to central banks and refer to it as going to the “lender of last resort,” he added.
Phan Ying Tong, the country head of the Cambodian Public Bank, said the short-term loan fund is a sensible policy for a central bank to take.
Banks sometimes issue a large volume of loans at one time and need cash to meet liquidity requirements, he said.
“It is very normal,” he added.