Commercial banks and microfinance institutions have acquired more than 209 billion riel in riel liquidity, worth $52.4 million, from the National Bank of Cambodia (NBC) since the central bank began its liquidity-providing collateralised operation (LPCO) in October 2016.
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The LPCO aims to boost the country’s riel liquidity.
Until March 20 this year, the NBC says it has released liquidity in riel via the LPCO to 25 financial institutions at an average three percent interest rate.
It said the maturity or repayment period is one year from the date of signature of the loan.
According to the trend of demand of the last three years, the NBC expects that the demand for riel (KHR) from banks and money changers to increase about seven percent compared with last year.
The market KHR demand might increase to about 4000 billion riel ($1 billion), according to NBC.
Last week, the NBC created two additional maturities for LPCO of three months and six months.
Maturity refers to the period from the date of signature of the loan to the last payment of the principal. Maturity is the sum of grace and repayment periods.
NBC director-general Chea Serey said yesterday that the creation of two additional maturities for the LPCO was implemented in accordance with an action plan to diversify the maturities of the liquidity operation.
“For more than a year now, through NBC conduct of the LPCO (the first LPCO was in October 2016) and our survey’s results with banks and MFIs, we have learned that several financial institutions need different maturities, while a few others are lacking short-term liquidity and some others may need longer-term liquidity,” Ms Serey said.
“Therefore, to meet these different maturities needs, but also to allow the NBC to better absorb and reallocate the liquidity, the NBC decided to introduce two new maturities in addition to the current one.”
She added that the second reason was to align the LPCO maturities with the maturities of negotiable certificates of deposits (NCDs) that were in high demand.
“We have a wide range of NCDs liquidity, from seven days, 14 days, 28 days, 91 days, 182 days and 364 days. As we use NCDs as collateral for LPCO, introducing three and six month maturities would facilitate financial institutions to use NCDs with these maturities.
“So, it would make use of the existing NCDs with the maturity of three and six months, thus increasing the demand for LPCO and supporting the demand for NCDs.
“As a result, financial institutions would be able to borrow more from LPCO at a low interest rate, and by doing so, they could in turn provide more loans to the public at a lower interest rate as well,” Ms Serey added.
“One more intended outcome is to encourage more financial institutions to participate in the LPCO bidding process, especially those who have not done so in the past.
“This is to familiarise these financial institutions in the money market and encourage them to actively develop the interbank market in the future,” she added.
“The third reason is to assist financial institutions in complying with the regulation that requires them to provide at least ten percent of their loans portfolio in KHR.
The deadline to fully comply with the requirement is the end of next year. Therefore, with the new additional maturities of LPCO financial institutions would be allowed to place their NCDs with the NBC and receive in exchange liquidity in KHR,” Ms Serey said.
She said that last year, the demand for KHR from banks represented 50 percent of total demand – the sum of the demand from banks and money changers.
However, for the first two months of 2018, the demand for KHR from banks represented 83 percent. The MFIs have not yet bought KHR directly from NBC.