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Central Bank Offers Loans to Boost Liquidity

Cambodia’s national bank has announced short-term loans for local banks and financial institutions that are facing liquidity constraints in the wake of the financial crisis.

A Jan. 20 directive obtained by VOA Khmer last week warns that “unforeseen or unprecedented adverse trends or market conditions” could mean that standard risk management might not suffice for some institutions, the National Bank directive says.

“Considering the risk, the NBC is considering granting overdraft facilities aimed at helping such institutions overcome temporary liquidity shortages,” the directive says.

The International Monetary Fund and World Bank have both warned that a number of Cambodia’s banks are facing liquidity problems, thanks to non-performing loans and a slowdown in deposits.

Any institution asking for the loans must be profitable, solvent and have collateral. The loans would have to be paid back within three months.

Officials from the Ministry of Economy and Finance say the NBC has prepared $100 million for lending, though requests for such loans cannot exceed 50 percent of a bank’s reserve requirements. (All commercial banks keep a reserve of 12 percent of deposits at the central bank.)

“The National Bank has already finalized a policy for banks that want to request [the loans],” Finance Minister Keat Chhon told reporters last week.

So far, none of Cambodia’s 47 institutions has applied for the loans, Keat Chhon said.

“The National Bank is taking measures by providing these loans, meaning that there is an effect on the banking sector, which could face a crisis,” Chheang Meng Heak, an economist at the Royal University of Law and Economics said. “This package will help ease tensions among investors, by demonstrating that we have enough funding to prevent unforeseen crises.”

He cautioned, however, that the loan package was just a short-term solution to help financial institutions. Some of these may still face problems if the real estate sector, a major lending target for Cambodia’s banks, slumps further.