The National Bank of Cambodia (NBC) issued $33.4 billion worth of negotiable certificates of deposit (NCD) to financial institutions last year, marking a sharp increase of more than 40 per cent compared to 2019.
This, it said, provided banks and other financial institutions another investment option for their short-term liquidity needs to keep their business activities afloat amid Covid-19.
Predominantly bolstered by a surge in demand from commercial banks, the NBC issued $30.8 billion in dollar-denominated NCDs last year, surging 45.3 per cent from 2019, the central bank said in its annual report.
NCDs issued in the local currency on the other hand clocked in at a mere 10.9 trillion riel ($2.7 billion) last year.
In March, the NBC introduced a deduction of the interest rate on NCDs and four other financial measures to open access to credit, providing financial institutions with the liquidity required for them to lend in support of businesses reeling under the pandemic.
Speaking to the media via video link during the rollout of the measures, NBC director-general Chea Serey said their goal was to support businesses as they battle the effects of the Covid-19 outbreak on the economy.
“The purpose of these policies is to support economic growth as the country faces the Covid-19 threat. The NBC continues to closely monitor the development of the situation inside and outside Cambodia,” she said.
Phnom Penh Commercial Bank Plc (PPCBank) president Shin Chang-moo told The Post on January 25 that NCDs are a financial tool that contributes to the development of the sector.
“NCDs are vital short-to-medium term money market instruments solely available on the market. Banks have high demand for NCDs to manage their excess liquidity and provide guarantees for funding [in Cambodian riel].
“NCDs also work as a benchmark interest rate since it is the only risk-free rate on the local market,” he said.
In Channy, president and group managing director of ACLEDA Bank Plc, told The Post on January 25 that the benefits of NCDs include high-quality liquid assets, zero-weighted assets for solvency ratio, no provision for expected credit loss, interest earnings and collateral for overdraft.
“The crux of why NCDs enjoyed an uptick last year was due to how quite a few banks and financial institutions were able to use the NCDs to manage their short-term surplus for one-to-three months, or as the collateral for their [riel-denominated] loans from the NBC,” he said.
ACLEDA Bank’s holdings of NCDs gained around eight per cent to $567 million last year from the $527 million held in 2019, according to Channy.
NCDs are short-term interest bearing debt issued by the NBC. They can be denominated in Cambodian riel or in the US dollar and it provides an option to commercial banks and microfinance institutions to invest their short-term liquidity, according to the NBC.
The minimum denomination for investment is 200 million riel or $50,000, the central bank says. The maturity of the NCDs ranges from two weeks to one year for riel-denominated ones and from two weeks to six months for those denominated in US dollars.
The interest rate of NCDs is determined by the NBC and varies from day to day according to market conditions, it says.
According to Serey, NCDs were introduced late in 2013 with the express aim of providing banks and financial institutions an instrument to improve the management of their liquidity.