No timetable for interbank market

Photo by: HENG CHIVOAN
An ANZ Royal employee works in Phnom Penh.

The Phnom Penh Post
Monday, 20 July 2009
Nguon Sovan

Central bank says there is no hurry to develop formal interbank lending, as informal lending has developed, but private banks say such a mechanism would help develop financial sector

THE director general of Cambodia's central bank declined Thursday to give a timetable for the establishment of an interbank market, saying the National Bank of Cambodia still needed to develop negotiable instruments in the absence of government treasury bonds or other government securities.

"We are not sure what kind of instrument will be issued to use in the interbank lending market, or when it will be delivered," Tal Nay Im said.

Interbank lending enables banks facing a temporary liquidity shortage to borrow from other banks, usually from overnight to one year.

In an interbank market, banks use negotiable instruments issued by the central bank as security when borrowing from each other. The central bank also sets target rates for interbank lending.

Tal Nay Im added that domestic banks had already set up an informal interbank market, taking pressure off the central bank to develop a formal mechanism. "We needn't form an interbank market, in fact, because interbank lending forms by itself," she said.

However, representatives of leading banks told the Post a formal system for interbank lending would be welcomed.

ANZ Royal CEO Stephen Higgins said the development of negotiable instruments to help establish a proper, functioning interbank market would be "another good step forward in the development of Cambodia's financial markets".

"While there is some interbank lending at the moment, this is fairly limited, and not in a form that would be typically seen in a normal interbank market," he said.

An interbank market would make the financial system more efficient by allowing banks to maintain lower liquidity levels as they would have confidence to borrow large amounts of money at short notice to cover unexpected cash outflows, he added.

ACLEDA Bank President and CEO In Channy said the bank already had lending arrangements with four other banks and some microfinance institutes, but that a formal market would strengthen Cambodia's banking sector.

"Currently, in some banks cash is abundant and some have enough cash, but some have little cash," he said. "So an interbank market will allow banks with a lot of cash to lend to banks with little cash, reducing the reliance on cash from overseas patrons."

Phan Ying Tong, country head at Cambodian Public Bank, or CampuBank, said his bank had no interbank lending arrangements.

"The initiative to form the interbank market is good because everywhere in the world central banks have established interbank markets," he said. "At the same time, it would improve confidence among banks."