Financial and banking experts believe that news regulation issued by the National Bank of Cambodia (NBC) on “Emergency Liquidity Assistance to Banking and Financial Institutions Accepting Deposits” will strengthen confidence among depositors in formal banking and financial institutions across Cambodia.
The objective of regulation No. B37.026.204 Pr.K, dated March 20, and signed by NBC governor Chea Serey, is to establish a framework for providing emergency liquidity assistance as a stronger option for banking and deposit-taking financial institutions. This mechanism is expected to serve as a more effective tool to mitigate risks and maintain financial stability.
“This regulation allows banking and deposit-taking financial institutions facing temporary liquidity shortages to request emergency liquidity assistance as a last resort, with the aim of preventing systemic risks and maintaining financial stability,” said an NBC statement.
“At the same time, under this new framework, the NBC will continue to act as a supervisory authority and support financial stability by ensuring that such assistance is implemented prudently, with clear conditions and based on risk management principles for the overall banking system,” it added.
NBC explained that Emergency Liquidity Assistance (ELA) refers to the provision of secured credit lines linked to current accounts that institutions hold at the NBC. These credit lines are granted at the discretion of the NBC in its role as the “lender of last resort” to institutions that are assessed as solvent and continuing normal operations but facing temporary liquidity shortages.
Unnamed financial and banking experts noted that, as the regulator of Cambodia’s financial sector, the NBC has consistently played an active and effective role in ensuring the sustainability of the country’s financial system.
They explained that the regulation is designed to provide cash support to banking and deposit-taking financial institutions when they face temporary cash shortages. In such cases, NBC will act as the “lender of last resort” to ensure that banks can continue operating smoothly.
“This NBC regulation will further strengthen the confidence of depositors in legally operating banking and financial institutions in Cambodia, because whenever issues arise, the central bank actively seeks mechanisms to help intervene and resolve them. Cambodia’s banking sector remains strong,” they said.
Although a regulation on liquidity assistance was introduced in 2015, significant changes in both domestic and global socio-economic conditions over the past decade prompted the NBC to update it in 2023. The latest revisions came into effect yesterday, March 20.
Earlier this week, Serey reassured the public that Cambodia’s banking system remains resilient, despite a small number of few banks experiencing liquidity issues caused by simultaneous withdrawals by depositors.