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ADB urges NBC to take on more financial policies to support SMEs in the country

Poovenraj Kanagaraj / Khmer Times Share:
(From left) Sunniya Durrani-Jamal, ADB Cambodia country director; NBC deputy governor Neav Chanthana; and Anthony Samson, second secretary of the Australian Embassy in Phnom Penh at Cambodia Fintech Day 2019. KT/Siv Channa

The National Bank of Cambodia (NBC) has tirelessly played an important role as a regulator in the country’s financial sector. It has authorised monetary policies that have ensured the Kingdom’s consistent economic growth.

The bank’s monetary policy has also successfully aided the country in achieving and maintaining economic growth of around 7 percent.

Asian Development Bank Country Director Sunniya Durrani Jamal points out that although the country’s financial sector is still evolving , NBC’s has played a positive role as a regulator.

“The NBC is undertaking measures to boost confidence in the riel to help local businesses grow” says Sunniya, referring to the NBC’s recent decision to have a corporate bond floated in the country’s local currency,

She went on to add that given the interconnectedness of the region because of trade and capital flows, it’s also critical for central banks to link up with other central banks and to communicate clearly with the market in order to instill confidence with regards to interest rates and other monetary policy tools.

The ADB also complements the central bank’s role in pushing forward application of technology in the financial sector. Such forward-looking policies will help reduce the cost of credit particularly for the poor and low income groups,” Sunniya says.

“Having said that, one of the risks that the NBC and other government agencies need to manage is the overheating of land prices and the real estate sector. While it’s not a problem unique to Cambodia, it could have implications for affordable housing for people who want to come to work and live in cities ,” she adds.

Sunniya believes that the overheating of real estate may not just have an impact on affordable housing but also on lending to other sectors, if borrowers and or developers are unable to repay their loans.

Furthermore, Ms Sunniya has also encouraged the central bank to consider adopting methods such as supply chain finance as well as trade finance in order to meet the diverse credit needs that have been growing with the increasing number of small and medium enterprises (SMEs) in the country.

The ADB believes that supply chain finance will be able to boost SMEs in the country. In instances where SMEs are not able to receive loans because of a lack of collateral or other forms of financial support from banks, supply chain finance is considered to be the solution by taking advantage of SME suppliers’ higher credit ratings in order provide them with the finances they need.

ADB Ventures, part of the ADB, will also be investing in small promising startups in the country. Startups often find themselves in a pinch when it comes to financial support because banks would require at least three years of balance sheet before they could decide whether to provide loans.

Another sector that the ADB believes in is that more attention is required from the central bank regarding “green” financing.

Climate finance, one of the emerging forms of green finance is usually available for projects in developing countries that help to reduce emissions or adapt to climate change. In recent times, the NBC has continued its call on financial institutions in the country to put policies in place in order to promote green finance and friendly investments. The central bank a member of the Swiss-based Bank for International Settlements (BIS) is following in its footsteps by expressing support for BIS’ open-funded fund for central bank investments in green bonds.

The NBC’s Governor Chea Chanto expressed his support by stressing that its role as a central bank is to contribute to mitigating financial risks triggered by the impact of climate change on economic, social and environmental conditions.

“Energy efficiency initiatives will require financing – for instance solar panels on roofs. There is a need for policy to encourage borrowing for these initiatives,” ADB’s country director says.

In terms of the direction the financial sector is taking on in the country, Sunniya says the above measures will help diversify sources of financing for business and consumers, which is the role of the financial sector. She added that the Kingdom is an attractive destination for foreign direct investments.

“Cambodia has an up-and-coming technical savvy and young population who will help to attract more diverse businesses,” Sunniya says.

She also points out that the country is also home to prominent international insurance firms and this is a good sign because the companies are seeing business opportunities in the country.

Sunniya is optimistic that with the current financial policies in place, the central bank will continue to lead the way in the future.

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