Liquidity to stay tight: IMF

Photo by: Heng Chivoan
An ATM in Phnom Penh. Liquidity remains restricted, the IMF said.

12% Cambodia's banking reserve requirement
The National Bank of Cambodia cut the rate from 16 percent to 12 percent effective from February 1 in a bid to increase liquidity among private lenders following the credit crunc

The Phnom Penh Post

Written by STEVE FINCH
Monday, 09 March 2009

Economy will continue to see restricted bank liquidity despite options to improve the situation, says IMF, as lack of overseas capital remains problematic

THE International Monetary Fund (IMF) on Friday said banking sector liquidity would remain tight for the rest of the year in a statement on the Cambodian economy following a routine visit to the Kingdom that ended Wednesday.

The IMF blamed "slowing external inflows" for the reduction in free capital in the banking system despite recent efforts by the National Bank of Cambodia to ease the liquidity situation, including a reduction in the reserve requirement from 16 percent to 12 percent from February 1.

"The [IMF] mission and authorities also agreed that some scope remained for further monetary easing in 2009 as inflation pressures ease," said an IMF statement.

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Banks have been running more liquidity than they normally would.
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The main liquidity adjusting option available to the central bank, sector sources say, is to bring down the reserve limit further in a bid to reduce redundant capital in the system.

"They [the authorities] could go back to eight percent," said John Brinsden, vice chairman of ACLEDA Bank, referring to the central bank's reserve requirement prior to late July, when it was doubled to 16 percent to stave off inflation and excessive lending.

Anthony Galliano, head of corporate and institutional banking at ANZ Royal, wrote in the Post last week that "a further [reserve rate] reduction would be greeted positively by banks that would welcome additional liquidity to lend into the economy".

This is one of the few options available to increase liquidity in a dollarised economy such as Cambodia's, he added.

Measures limited
While the IMF described January's lowering of the reserve requirement to 12 percent from as an "improvement", Brinsden said that in practice the change had resulted in few practical benefits due to other liquidity-curtailing measures imposed by the central bank.

Private banks are now required to maintain a certain level of liquidity on individual currencies, he said, rather than an overall liquidity ratio, meaning that banks cannot offset different currencies against each other.

Also, "banks have been running more liquidity than they normally would to be on the safe side", Brinsden said.

The central bank at the end of January enacted a measure affording banks with short-term liquidity problems a new overdraft facility that the IMF welcomed as a "substantive" action to help address Cambodia's liquidity concerns.