Financial Crime World

NBC Tightens Grip on Banking Sector, Boosts Liquidity Coverage Ratio

The National Bank of Cambodia (NBC) has taken several measures to ensure the stability and resilience of the banking sector. Effective January 2020, the NBC has increased the minimum liquidity coverage ratio from 50% to 100%.

Mitigating Short-Term Liquidity Risks

The move aims to ensure that commercial banks, specialized banks, and microfinance deposit-taking institutions maintain a sufficient level of liquid assets to meet their maturing liabilities. This is crucial in mitigating short-term liquidity risks.

Enhanced Supervision

  • The NBC has extended its supervision coverage to include entire transactions conducted between related parties, rather than just loan transactions.
  • The bank has also increased transparency requirements for reporting on related party loans, requiring quarterly reports instead of annually.

Stricter Guidelines

The NBC has introduced stricter guidelines for:

Equity Participation

  • Banks are now permitted to hold up to 15% of their net worth in each equity participation, with a maximum total equity participation restricted to 60% of their own net worth.
  • This is aimed at preventing over-concentration of risk and ensuring the stability of the banking sector.

Securities Trading and Credit Risk Grading

  • The NBC has introduced uniform credit risk grading and provisioning standards for all banks and financial institutions, effective December 2017.
  • The new system classifies assets into five categories, with varying provisioning requirements depending on the duration of facilities.

New Securities Product

The NBC has launched negotiable certificates of deposit (NCDs), a new securities product designed to help banks maintain liquidity during economic crises. NCDs will enable banks to convert surplus deposits into securities and use them as collateral for interbank loans.

Industry Reaction

Industry insiders welcome the stricter regulations and guidelines, citing their importance in ensuring the stability of the banking sector and protecting depositors’ interests. A senior banker noted that “The NBC’s moves demonstrate its commitment to promoting financial stability and preventing crises. We welcome these measures, which will help to enhance our institution’s resilience and reputation.”

Conclusion

The NBC’s efforts to strengthen the banking sector are a positive step towards enhancing the resilience of the sector. The move is seen as a necessary step towards ensuring the stability of the banking sector and protecting depositors’ interests.