In the face of recent posts circulating on social media claiming that several banks are facing closure due to a shortage of cash to serve depositors, Chea Serey, governor of the National Bank of Cambodia (NBC), has affirmed that Cambodia’s banking system remains strong, although she acknowledged that a small number of banks have experienced liquidity issues caused by depositors withdrawing funds at the same time.
In a more than five-minute video on the afternoon of March 16, Serey noted that there has recently been information on social media suggesting that certain banks have closed. However, she stressed that the current situation is not like what has been represented on social media. The reason some banks face difficulties, she suggested, is because a large number of depositors withdrew their money simultaneously, which can create short-term cash flow challenges for banks.
She explained that banking operations are similar around the world. Banks function as financial intermediaries, meaning they receive deposits from those who have surplus funds and do not need to use them immediately. Those funds are then lent to people who need financing for investments such as buying houses, building hotels, constructing factories or expanding businesses.
Such use of funds helps stimulate economic activity. In other words, money that is not currently being used can be mobilised to support economic sectors. In general banking practice, only a small portion of deposited funds is kept as reserves to meet depositors’ immediate needs. Therefore, some depositors who do not need their money right away place it in fixed deposits, or term deposits, for periods such as three months, six months, nine months or one year depending on their preference.
She noted that funds deposited by customers can then be lent to other customers. Borrowers typically do not take loans for periods as short as three or six months. Instead, loans are often long-term. For example, someone purchasing a house may borrow for up to 20 years, while those borrowing to expand businesses may take loans for five years or even longer.
“Banks therefore need to manage the timing between deposits and loans so that they match. This is how banking operations work. Over the long term, banks always maintain sufficient liquidity to serve depositors. However, when all depositors rush to withdraw their funds from a financial institution at the same time, the bank may face a liquidity problem. This means the bank’s funds cannot circulate quickly enough, not that the bank does not have money to repay, but that most of the funds have already been lent out to borrowers, and those loans are long-term,” explained Serey.
“If everyone demands their money back at the same time, the bank would need to demand repayment from all borrowers at the same time. But as we know, borrowers who operate businesses cannot repay everything immediately because they plan to repay the loan over five years or more. If the bank asks for repayment before even one year has passed, borrowers will not have the ability to repay right away,”.
“This is where the issue arises. If all depositors withdraw their funds simultaneously, it is normal that banks may not have enough cash on hand, meaning they lack immediate liquidity to provide to depositors,” she added.
She reiterated her faith in the Kingdom’s banking sector.
“I would like to inform everyone that our banking system remains strong at present. All operating banks are continuing their activities, and most customers are able to conduct transactions as usual. Therefore, we ask the public to allow the National Bank of Cambodia time to continue working with the relevant banks to find solutions regarding depositors’ funds,” she continued.
