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NBC halts interest payouts on reserves of Kingdom’s banks

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The head office of the National Bank of Cambodia in Phnom Penh. Vireak Mai

NBC halts interest payouts on reserves of Kingdom’s banks

The National Bank of Cambodia has announced that it will stop offering interest payments to banks in the Kingdom for their currency reserves. Banking sector leaders say the move will not alter current business models.

While the decision to cut off interest payments from the central bank to commercial firms could see revenues fall, many in the industry say the interest they earn is just a small fraction of profits.

A message on September 4 from NBC governor Chea Chanto said the central bank’s committee for monetary policy decided to end the interest payments.

However, the announcement did not provide details on how the decision came about or what the interest rate had been.

‘Look after customers’

Currently, reserve requirements for lenders stand at 12.5 and eight per cent for foreign and domestic currencies, respectively.

The NBC previously paid out an interest of 4.5 per cent of the total reserves for foreign currency. No interest was paid for reserves in riel.

President and group managing director of Acleda Bank, In Channy, said the decision wouldn’t impact the bank’s operation because revenue from the interest is very small.

“The interest rate revenue on the reserve requirement was very small, so there will be no impact on the bank’s operations,” he said, adding that all the institution’s consumer-facing rates will stay the same.

“[The move] could make some banks consider lower interest rates on deposits, but I don’t think anyone will do this because there are more banks and more competition, so everyone needs to look after their customers.”

Cambodia Microfinance Association (CMA) chairman Kea Borann said on Sunday that the NBC’s decision to end interest payments on reserves will not substantially change the banking industry’s income.

“I think it will encourage banks to look at sources of funding within Cambodia. Therefore, banks may try harder to mobilise deposits and possibly issue corporate bonds,” he said.

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