Cambodia’s Financial Institutions Face Increased Scrutiny Over Risk Management

In an effort to bolster financial stability and protect depositors and creditors, Cambodia’s National Bank has issued a Prakas, or proclamation, outlining a framework for liquidity risk management in the country’s banking and financial institutions.

Effective September 27, 2017: A New Framework for Liquidity Risk Management

The Prakas aims to establish a standardized approach to managing liquidity risks, which are defined as potential problems that could arise from a sudden increase in withdrawals or other short-term funding needs. This move is seen as a key step in reducing the severity of such crises and minimizing their impact on the banking system.

Requirements for Financial Institutions

Under the new framework, financial institutions will be required to:

• Develop and implement effective liquidity risk management strategies
• Regularly monitor and report liquidity positions
• Conduct stress testing and contingency planning
• Comply with regular supervisory reviews conducted by the National Bank

Promoting Financial Stability in Cambodia

The move is seen as a major step forward in promoting financial stability in Cambodia, which has been experiencing rapid economic growth in recent years. However, this growth has also brought new risks, including:

• Increased liquidity risk due to rapid credit expansion
• High levels of foreign exchange volatility

Strengthening the Financial System

The National Bank’s move is also seen as a key part of its efforts to strengthen the country’s financial system and promote stability, following a number of high-profile banking crises in recent years.