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Cambodia’s Central Bank Issues Guidelines on Stress Testing and Contingency Funding
Phnom Penh, September 27, 2017
The National Bank of Cambodia (NBC) has issued a prakas outlining guidelines for stress testing and contingency funding plans for all banking and financial institutions under its supervision.
Guidelines Overview
The guidelines require institutions to conduct regular stress tests to assess their liquidity risk and ensure they have sufficient contingency funding in place to respond to periods of liquidity stress. Stress tests must cover forward-looking scenarios, including:
- Changes in portfolio composition
- New information
- Emerging risk possibilities
Institutions are also required to establish a contingency funding plan (CFP) that is closely integrated with their ongoing analysis of liquidity risk and stress test results. The CFP must include:
- Available contingency funding sources
- Escalation procedures
- Lead time needed to benefit from additional funds
Contingency Funding Plan Requirements
Institutions are required to review and update their CFP at least annually for the Board’s approval, or more often as changing business or market circumstances require. For institutions that rely heavily on retail deposits, the plan must address a retail deposit run and include measures to repay retail depositors as soon as practicable.
Flexibility and Documentation
The guidelines emphasize the importance of flexibility in contingency funding plans, allowing institutions to respond quickly to different scenarios. Institutions are required to:
- Ensure their CFP is documented
- Communicate the plan to those affected by its execution
- Regularly test and update the plan
Deadline for Implementation
The NBC has given a deadline for implementation of these guidelines, with all banking and financial institutions under its supervision expected to comply with the prakas from the signing date.
Key Points
- Stress tests must cover forward-looking scenarios and include reverse assumptions relevant to the institution’s business activities
- Contingency funding plans must articulate available contingency funding sources, escalation procedures, and lead time needed to benefit from additional funds
- Institutions must review and update their CFP at least annually or more often as changing circumstances require
- Retail deposit institutions must address a retail deposit run in their CFP
- Contingency funding plans must be flexible and allow for quick response to different scenarios
Contact Information
For more information, please contact the National Bank of Cambodia’s General Secretary at [insert contact information].