U S Embassy Laos Business Mission May 7

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U. S. Embassy Laos Business Mission May 7 th 2008 Lao Plaza Hotel Allan Marlin Managing Director

Background • The Financial Sector has been going through a period of change since 1988 • The sector remains shallow-limited financial intermediation and without significant out reach at this stage • The sector consists exclusively of banks’ • Two Insurance companies , no leasing company, and no other non-bank financial institutions • Financial services reach is limited to about 13% of the population

History • March 1988 Decree 11 on the Reform of The Banking System separating banking functions from central bank functions • 1989 Foreign Banks allowed to operate within Lao PDR • June 1990 Central Banking Law • Two tiered system of Banks Introduced • Four Regional Banks formed 1990 -1991 to provide services to the province • Capacity restraints, Directed and Policy Lending resulted in substantial NPL burden • Problems recognized and Banking sector reform commenced under auspices of ADB program

History (2) • Provincial Banks merged from 6 to 2 • Decree 40/PM promulgated April 2000 on the Organization & Activities of BOL • Law 01/OP issued August 2002 on governing the management of foreign exchange & precious metals • New Law on Commercial Banks 03/NA introduced December 2006

Condition of Banks’ Prior to Commencement of Banking Sector Reforms • The financial performance of the State Owned Banks was not satisfactory • Historical Nonperforming Loans (NPLs) represented the most serious financial issue • Banks are exposed to foreign exchange movement risks and highly vulnerable to local currency depreciation • High cost of operations and due to inefficiencies

Today • Three state Owned Commercial Banks (SOCB) in Lao PDR holding 51% of the formal market; • The largest is Banque Pour Le Commerce Exterieur Lao (BCEL); • 7 foreign Banks; six are branches of Thai banks , one a branch of a Malaysian bank, two private commercial banks and two Joint Venture Banks • Two insurance companies; • Micro-finance and community banking initiatives; • Two new bank licenses issued

Commercial Banking Law 2006 & Regulatory Environment • Registered capital 100 billion LAK • Capital Adequacy ratio 8% • 25% of capital to be retained in BOL as a reserve • Large exposure limit to single customers limited to 25% of capital • Contains details of Board and Governance structures • Limit on FX open position

Foreign Currency • LAK, USD, THB cash are freely tradable and convertible • Payments are governed by the 2002 law on Foreign Exchange • Invoices for payment within Laos must be in the local currency • Payment for goods & services overseas are allowable against appropriate documentary evidence • Residents and non residents allowed to open foreign currency accounts • Offshore bank accounts require BOL approval • Import of capital requires a BOL importation of capital certificate

Foreign Investment Law q Issued 2005 q All Foreign Investors are required to obtain approval & issuance of a foreign investment certificate from the Ministry of Planning and Investment q Allows repatriation of capital & profits providing all tax & labor commitment are in order q Note – Capital repatriation must be in line with capital importation certificate - BOL approved q Expatriate employees able to remit salaries offshore

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