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WEEKLY NEWSLETTER
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Laos
Index
In March 1988, Decree 11 on the reform of the banking
system
was passed, separating commercial bank functions from
central bank
functions. The Vientiane branch of the old State Bank, the
Banque
d'État de la République Démocratique Populaire du Laos
(RDPL),
became the central monetary agency. In June 1990, the
Central
Banking Law was passed, establishing the Bank of the Lao
People's
Democratic Republic, or Central Bank, to replace the State
Bank.
Under this law, the Central Bank assumes responsibility
for
regulation and supervision of commercial and regional
banks;
maintenance of foreign exchange reserves; issuance and
supervision
of money for circulation; licensing, supervision, and
regulation of
financial services; and management of the monetary and
credit
system. The Central Bank has about ninety regional
branches; as of
1991, the government was considering separating these
branches into
three regional banks, serving the southern, northern, and
central
regions.
Other branches of the former State Bank were
transformed into
autonomous commercial banks to promote private investment.
These
banks are responsible for accepting savings deposits from
enterprises, government departments, and individuals, and
for
granting credit to state entities, joint ventures, and
individuals
for capital investment and business start-ups or
expansion.
Commercial banks are restricted from granting credit to
economic
units experiencing deficits and losses. These banks do not
receive
subsidies, although they do render 60 percent of their
profits to
the government.
By 1991 Laos had seven commercial banks, including the
Joint
Development Bank--a Lao-Thai joint venture--and six wholly
stateowned banks. Government policy encourages privatization of
these
six banks. However, in part because of the absence of laws
governing banking activities and in part because of the
relatively
small size of the economy, foreign bankers do not express
much
interest in these ventures.
The Foreign Trade Bank (Banque pour le Commerce
Extérieur Lao--
BCEL), a subsidiary of the Central Bank, is the country's
foreign
exchange and foreign trade bank. By Decree 48 of July
1989, the
Central Bank is assigned sole responsibility for setting
and
managing the exchange rate. BCEL was granted autonomy in
November
1989 and was charged with handling foreign exchange
transactions
relating to trade; as of 1991, BCEL had arrangements with
sixtyfour banks internationally. However, a Foreign Exchange
Decree was
scheduled to go into effect soon after 1991, allowing all
commercial banks already authorized to deal in foreign
exchange to
carry out foreign exchange transactions themselves, thus
removing
BCEL's monopoly on such activities. Information on the
status of
this decree was unavailable as of mid-1994.
Responsibility for state-owned enterprise debts was
transferred
to the commercial banks, giving them enormous liquidity
problems.
To alleviate the precarious situation, in 1989 the
government
allowed foreign banks to begin operations in Laos. That
October the
Joint Development Bank became the first private commercial
bank
permitted to operate since 1975, followed soon thereafter
by the
Thai Military Bank. In addition, new reform measures
stipulate that
enterprises will have to clear all debts owed to the banks
before
being considered for new loans. In 1990 the Asian
Development Bank
granted Laos a soft loan of US$25 million to recapitalize
the
banking system.
Interest rates on commercial bank deposits with the
Central
Bank are uniform across the country and are generally
higher than
rates for enterprises depositing at the commercial banks.
After
August 1989, only minimum interest rates are set by
authorities;
banks are allowed to set specific rates on their own.
Interest
rates on deposits vary from bank to bank, depending on the
type and
currency of deposits. The annual rate on kip deposits at
the end of
1991 was between zero and 1.2 percent for most banks;
fixed
deposits in kip earned between 16 and 24 percent annually,
and
deposits in United States dollars at some banks, including
BCEL,
earned 7 percent annually. Rates for loans depend on the
term and
currency of the loan and on the sector for which the
investment is
intended. Loans for the agriculture and forestry sectors
carry
rates ranging from 7 to 12 percent, for example, and loans
for the
services sector carry rates between 12 and 30 percent.
Data as of July 1994
The Banking System
In March 1988, Decree 11 on the reform of the banking
system
was passed, separating commercial bank functions from
central bank
functions. The Vientiane branch of the old State Bank, the
Banque
d'État de la République Démocratique Populaire du Laos
(RDPL),
became the central monetary agency. In June 1990, the
Central
Banking Law was passed, establishing the Bank of the Lao
People's
Democratic Republic, or Central Bank, to replace the State
Bank.
Under this law, the Central Bank assumes responsibility
for
regulation and supervision of commercial and regional
banks;
maintenance of foreign exchange reserves; issuance and
supervision
of money for circulation; licensing, supervision, and
regulation of
financial services; and management of the monetary and
credit
system. The Central Bank has about ninety regional
branches; as of
1991, the government was considering separating these
branches into
three regional banks, serving the southern, northern, and
central
regions.
Other branches of the former State Bank were
transformed into
autonomous commercial banks to promote private investment.
These
banks are responsible for accepting savings deposits from
enterprises, government departments, and individuals, and
for
granting credit to state entities, joint ventures, and
individuals
for capital investment and business start-ups or
expansion.
Commercial banks are restricted from granting credit to
economic
units experiencing deficits and losses. These banks do not
receive
subsidies, although they do render 60 percent of their
profits to
the government.
By 1991 Laos had seven commercial banks, including the
Joint
Development Bank--a Lao-Thai joint venture--and six wholly
stateowned banks. Government policy encourages privatization of
these
six banks. However, in part because of the absence of laws
governing banking activities and in part because of the
relatively
small size of the economy, foreign bankers do not express
much
interest in these ventures.
The Foreign Trade Bank (Banque pour le Commerce
Extérieur Lao--
BCEL), a subsidiary of the Central Bank, is the country's
foreign
exchange and foreign trade bank. By Decree 48 of July
1989, the
Central Bank is assigned sole responsibility for setting
and
managing the exchange rate. BCEL was granted autonomy in
November
1989 and was charged with handling foreign exchange
transactions
relating to trade; as of 1991, BCEL had arrangements with
sixtyfour banks internationally. However, a Foreign Exchange
Decree was
scheduled to go into effect soon after 1991, allowing all
commercial banks already authorized to deal in foreign
exchange to
carry out foreign exchange transactions themselves, thus
removing
BCEL's monopoly on such activities. Information on the
status of
this decree was unavailable as of mid-1994.
Responsibility for state-owned enterprise debts was
transferred
to the commercial banks, giving them enormous liquidity
problems.
To alleviate the precarious situation, in 1989 the
government
allowed foreign banks to begin operations in Laos. That
October the
Joint Development Bank became the first private commercial
bank
permitted to operate since 1975, followed soon thereafter
by the
Thai Military Bank. In addition, new reform measures
stipulate that
enterprises will have to clear all debts owed to the banks
before
being considered for new loans. In 1990 the Asian
Development Bank
granted Laos a soft loan of US$25 million to recapitalize
the
banking system.
Interest rates on commercial bank deposits with the
Central
Bank are uniform across the country and are generally
higher than
rates for enterprises depositing at the commercial banks.
After
August 1989, only minimum interest rates are set by
authorities;
banks are allowed to set specific rates on their own.
Interest
rates on deposits vary from bank to bank, depending on the
type and
currency of deposits. The annual rate on kip deposits at
the end of
1991 was between zero and 1.2 percent for most banks;
fixed
deposits in kip earned between 16 and 24 percent annually,
and
deposits in United States dollars at some banks, including
BCEL,
earned 7 percent annually. Rates for loans depend on the
term and
currency of the loan and on the sector for which the
investment is
intended. Loans for the agriculture and forestry sectors
carry
rates ranging from 7 to 12 percent, for example, and loans
for the
services sector carry rates between 12 and 30 percent.
Data as of July 1994
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