Lao Banks Remain Financially Sound

Commercial banks in Laos are still in sound financial shape as non-performing loans (NPL) remain below 3 percent despite a rapid increase of credit, according to the top central bank official.

Speaking at a session of the National Assembly conference recently, the Bank of the Lao PDR Governor, Mr Somphao Phaysith said that credit released by banks in Laos saw a 42 percent increase in September compared to the same period last year.

Despite the rapid increase of credit, non-performing loans remain at 2.75 percent, below the annual target of 3 percent, he told law makers amid worries that at rapid rise in credit would pose negative impacts on macro-economic stability in Laos.

The International Monetary Fund (IMF) has urged Laos to put a dampener on the rapid credit growth if it wants to maintain macro-economic stability, according to its official website. The international finance institute said that the rapid rise in credit would result in higher import values, one of the main factors causing a drain on foreign currency reserves.

Low foreign reserves could pose negative impacts on the exchange rate between the Lao kip and foreign currencies in particular the US dollar and the Thai baht.

According to commercial bank officials, the rapid rise in credit will pose no harm to the economy as long as non-performing loans remain low.

They said the central bank should increase efforts to keep non-performing loans at below 3 percent as planned otherwise the country will face economic challenges.

Mr Somphao said one of the main reasons there was a rise in credit in the Lao economy was the fact that commercial banks were able to encourage more people to deposit funds and therefore loan more money out as well. He noted the deposit value at commercial banks saw a 20.44 percent increase in September compared to the same period last year.

He also said the central bank has allowed commercial banks to use their combined registered funds which total 500 billion kip to finance active investment projects while some of the banks borrowed money from its headquarters to finance the mega investment projects in Laos.

Mr Somphao said the central bank had encouraged the commercial banks to keep deposit interest rates positive in accordance with domestic and foreign conditions, aiming to increase deposit values at the banks.

The bank also encouraged its commercial counterparts to mobilise funds from foreign sources and provide loans for active investment projects in Laos.

He confirmed that the Bank of the Lao PDR was in a position to keep the Lao macro economy stable thanks to sufficient foreign reserves, which are enough to secure goods imports for more than 5.4 months.

According to the Ministry of Planning and Investment, import values in Laos in the 2012/2013 fiscal year were US$2.8 billion while export values were US$1.8 billion.

Construction materials, vehicles, and fuel are the main goods which Laos imported last fiscal year.

Source: Vientiane Times