Monetary and Banking at Sophia as of 11 Nov 4pm

Mo eta y Poli y I ple e tatio  a d 

Ba ki g Se to  De elop e t 

i  Ca odia

M . Duo g Sophak, Di isio  Chief a d M . You Vithyea, Se tio  Chief

Depa t e t of E o o i  Resea h a d I te atio al Coope atio  Depa t e t

The  ie s e p essed i  this p ese tatio  a e those of the autho  a d do  ot 

P ese tatio  at Sophia U i e sity

No e e  

,  , Tokyo

Table of Contents

I. Contribution to Cambodian economic

growth

I. Monetary Policy Implementation

 Monetary Policy and Instruments

 Interbank and Foreign Exchange Market

Development

 Promotion of the Use of Riels

II. Banking Sector Development

 Banking Institutions

Contribution to

Economic Growth

‐ %

%

%

%

%

%

%

%

%

p Ag i ultu e Ga e t Co st u tio T ade,  eal estate a d fi a e Hotel & Restau a ts Othe s Real GDP G o th

Co t i utio  to E o o i  G o th

• Afte hitti g glo al fi a ial isis, Ca odia a a hie e the o ust g o th at

a ou d % a uall , d i e Ga e t, Co st u tio , Tou is a d Ag i ultu e.

Monetary Policy

Implementation

What is Monetary Policy?

 Monetary Policy is the process by which a central bank controls the

supply of money in the economy by exercising its control over interest

rates in order to maintain price stability and achieve high economic

growth.

- Contractionary Monetary Policy: slows the rate of growth in the

money supply or outright decreases the money supply in order to

control infla tion.

- Expansionary Monetary Policy: increases the rate of growth in

money supply to spur growth and reduce unemployment.

What is Monetary Policy?

 Conventional vs. Unconventional monetary policy

- Conventional MP

The policies that mainly act by setting a target for the overnight interest

rate in the interbank market and adjusting the supply of central bank money to that

target through Open market operation, Reserve requirement, and Standing facility

(lending and deposit).

- Unconventional MP

The policies that directly target the cost and availability of external

finance to banks, households and non-financial companies. These sources of finance

can be in the form of central bank liquidity, loans, fixed income securities or equity

by using Direct Quantitative Easing, Direct Credit Easing and Indirect Quantitative

Easing/Credit Easing.

• In the US, the Fed loaded its balance sheet with trillions of dollars in

Treasury notes and mortgage-backed securities between 2008 and 2013.

• The Bank of England, the European Central Bank and the Bank of

What is Monetary Policy?

 Monetary Policy Formulation

- The Monetary Policy Committee, chaired by the Governor, a high-level

policy committee at the National Bank of Cambodia, was established to

assess the ongoing economic and financial developments of the country

and to make decisions on monetary policy, with the objective of

maintaining price stability.

- Monetary Policy Sub Committee, chaired by Director General of Central

Banking, was established to implement monetary policy determined by

Monetary Policy Committee.

- Monetary Policy Secretariat: composes of economists, researchers and

experts, they monitor and assess macroeconomics and financial sector’s

context, conduct forecasting and prepare a monetary policy report for

MPC.

What is Monetary Policy?

 Law on the Organization and Conduct of the NBC

- Article 3: The principle mission of the Central Bank is to

determine and direct the monetary policy aimed at maintaining

price stability in order to facilitate economic development

within the framework of the Kingdom’s economic and financial

policy.

What is Monetary Policy?

In order to do so, the law allows the Central Bank to have following

functions and duties:

 To determine monetary policy objectives, in consultation with the

Royal Government and consideration of the framework of the

economic and financial policy of the Kingdom

 To formulate, implement and monitor monetary and exchange

policies aimed at the determined objectives

 ……  To participate in the formulation and supervision of the money

and financial markets

 ……  To set the interest rate

Monetary Policy Instruments

What are the monetary policy instruments at NBC’s disposal?

Because of high dollarization and under developed financial

markets, the available instruments are limited:

 Exchange Rate Policy

 Reserve Requirement Rate

Monetary Policy Instruments

 Exchange rate policy

The NBC adopted the stabilized exchange rate regime.

What does it mean?

We leave the exchange rate floating…

BUT intervene when the situation warrants.

Monetary Policy Instruments

In the context of high dollarization, the NBC intervenes the market to supply

local currency based on the market demand to stabilize the exchange rate.

-50% 0% 50% 100% 150% 200%

0 1 2 3 4

Sell KHR G o th  RHS T illio  Riel

E ha ge Rate Mo e e ts

• NBC i ple e ts e ha ge  ate‐ ased  o eta  poli  

• E ha ge  ate  as d i e    seaso al fa to s of ta  pa e t a d ag i ultu al 

pu hase

• NBC i te e es i  the fo eig  e ha ge  a ket u de  the  a aged float 

e ha ge  ate  egi e   allo i g the flu tuatio  of ‐ % a d + % 

• E ha ge  ate has  ee  sta le fo  the last t o de ades,  ith a  a e age  ate of 

,   iel pe  US dolla  

4,037

3,500 3,600 3,700 3,800 3,900 4,000 4,100 4,200 4,300

Exchange Rate

(monthly average midpoint market rate, 1998-2017H1)

Monetary Policy Instruments

 The impacts of exchange rate’s movement

- Depreciation of KHR could penalize the KHR holders, create

inflationary pressure, increase interest rate of KHR loans

- Appreciation of KHR could penalize the workers whose

incomes are in USD such as garment workers

The NBC has strived to stabilize the exchange rate to enhance

the public confidence in Riels, preserve the purchasing power

especially for poor people and limit the exchange rate risks.

Monetary Policy Instruments

 NBC monitors very closely the movement of the exchange rate.

 NBC would decide to let it vary or to intervene in the foreign

exchange market based on the economic fundamentals and

monetary policy’s objectives by taking into consideration the

impacts of exchange rate’s movement.

 The law provides NBC total independence in conducting

monetary policy/the exchange rate policy to achieve the monetary

policy objective.

 NBC has no obligation to intervene at all time in the market, in

particular when the foreign exchange market could provide

enough liquidity to the demand and/or the increase in demand is

temporary or for speculative purpose.

P i e De elop e t

• Ca odia had o tai ed i flatio elo pe e t o a e age – a e a ka le feat

gi e that high i flatio t pi all a o pa ies high e o o i g o th.

‐

P i e De elop e t

 CPI‐ MoM  CPI‐ YoY

%

• The i flatio ate e ai s odest due to lo oil p i es a d i po ted i flatio .

Food p i es a e the ai fa to of o e all i flatio .

P i e De elop e t

-3 -2 -1 0 1 2 3 4 5 6

Ja Ma Ma Jul Sep No Ja Ma Ma Jul Sep No Ja Ma Ma Jul Sep No Ja Ma Ma Jul Sep No

  Food a d No ‐Al oholi  Be e ages   Housi g, Wate , Ele t i it , Gas a d othe  Fuels

  T a spo tatio Othe

Headli e I flatio

%

Monetary Policy Instruments

 Reserve Requirement Rate (RRR)

.

KHR % F %

%

Mo eta  De elop e t

• US dolla  i flo s  e e flooded   UNTAC f o   ‐  

• FCD/M  stood at app o i atel   %

• A e age g o th f o   ‐ :  ∆M  :  . %         ∆FCD :  . % 

• ∆COB :  . %      ∆Riel deposit :  . %

0 10 20 30 40 50 60 70

0 10 20 30 40 50 60

70 ^%

in trillion of riels

Co positio  of M  a d A ual Pe e tage Cha ge i  M

‐Ju e 

FCD COB Riel Deposits M2 growth (RHS)

 NCD was launched in late 2013 to create a market based instrument for the

interbank market transaction.

 The demand for NCD has significantly increased, particularly in the last 2 years.

Interbank Market Development

 ‐                

I  t illio   iels 

Fo e ast

LPCO

. ^.

0 5 10 15

O t‐ No ‐ De ‐ Ja ‐

illio   iels Nu e

Ba ks a d 

Fi a ial 

I stitutio s

Li uidit  i  KHR/USD

Li uidit  i  KHR

NCDs

NCDs

Liquidity Providing and Absorbing

Through NCDs and LPCO

NBC

NCDs

Interbank markets

Interbank Market Development

Interbank Market Development

 Future Monetary Policy tool: Marginal Lending Facility

(MLF)

- Conceptual Basis of Marginal Lending Facility

• Facility through which central bank lends to banks

• From perspective of counterparty also referred to as borrowing

facility

• Liquidity management instrument to meet ad hoc unexpected

liquidity need (which remains uncovered despite OMOs and

interbank market).

• Provides a regular access to central bank credit at predetermined

cond itions

Proportion of KHR amounts that Banks and Money Changers bought from NBC

Foreign Exchange Market Development

To develop a wholesale foreign exchange market in which

banks play as a market maker and

To enhance the regulations on the foreign exchange market.

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20%

40%

60%

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100%

S S S S S S S

Ba ks Mo e  Cha ge s

Promotion of the Use of Riels

 The Government and the NBC have implemented

policies to promote Riels on market-driven and gradual

basis.

- The National policies to promote Riels have been reviewed

by Economic and Financial Policy Committee before

submitting to the Head of the Government.

- These policies would continue to encourage the use of Riels

in the economy.

- Promotion of Riels is not solely NBC’s tasks, but all agents

in all sectors: public institutions, corporates, financial

institutions, NGOs, individuals etc. take part in this process.

- Banks and Financial Institutions should participate actively

in this policy implementation.

Promotion of the Use of Riels

Why promotion of the use of Riels is important, in particular to

banks and financial institutions?

 Could obtain sustainable source of funds

 Lower costs of funding

 Reduce liquidity risks

 Mitigate exchange rate risks and

 Enhance the role of lender of last resort of the NBC to help

banks and financial institutions in case of urgent liquidity

need.

Cambodian Banking Sector

Ba ki g Syste  i  Ca odia

Natio al Ba k of Ca odia

 Ba ks  MFIs Othe s Fi a ial Leasi g

‐ Co e ial Ba ks

‐Spe ialized Ba ks

‐MDIs

‐Li e sed MFIs

‐Leasi g

‐Thi ty Pa ty P o esso s

‐CBC

‐Rep ese tati es

‐NBC B a hes

Total Assets Co pared to GDP 

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Descriptions 2011 2012 2013 2014 Dec‐15 Jan‐16 Dec‐16 Jan‐17 ^%(2016‐_Jan‐17) % Y‐O‐Y Number of Bank branches* . % . %

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Number of Debit card , , , , , , , , , , , , , , . % . %

Number of Credit card , , , , , , , , . % . %

Number of POS Banks , , , % #D)V/ !

Number of Serivce Posts Banks % #D)V/ !

Number of Employees*** , , , % #D)V/ !

***Including of Banks and MFIs

*Including head office

**Including head offices, Provinces & Districts Branch

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National Bank of CambodiaRiel. Stability. Development.

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A ualized ROA & ROE

Co lusio

• E o o i  g o th  o ti ued to  e high i    i  Ca odia, at 

%  lose to the  . % t e d of the p e ious fi e  ea s, 

• C edit g o th de li ed su sta tiall  i   , glo all  at  . % o  

a  ea l   asis, la gel   elo  the   % a e age o e  the p e ious 

fi e  ea s a d e e  the  . % i   .

• The populatio  of the  a ki g i dust  still i eased i   , 

although the populatio  is al ead   uite la ge. The e  ill  e ti e 

fo   o e  o solidatio .

• The sol e   atio i   a ks  e ai s a o e  % o  a e age,  ut 

so e la ge a d  ediu   a ks ha e a  i di idual  atio  u h 

lose  to the  i i u  th eshold of  %. 

• Sol e   atios i  MDIs a e  u h lo e , a ou d  % o  a e age, 

a d thei   o pa ati e situatio  is e e   eake  as thei  Tie  

apital is o l   .  % of thei  total  apital o  a e age,  o pa ed 

to  .  % i   o e ial  a ks  Ju e  .