Banks Cut Interest Rates On Kip Accounts, Raise For Foreign Currencies

Source: Vientiane Times

Commercial banks in Laos have lowered the interest rates charged on loans and offered on kip accounts in line with a recent decision made by the Bank of the Lao PDR, hoping to stimulate economic activity.

Conversely banks have raised the interest rates offered on Thai baht and US dollar deposit accounts hoping to build up reserves of these currencies amidst rising demand for the baht and US dollar.

Banks informed Vientiane Times yesterday that lowering the interest rates on kip accounts and loans was intended to encourage people to spend kip and boost commercial productivity.

The lower interest rate on kip accounts would deter people from depositing money in banks and keep it in circulation, which would also bolster productivity, they explained.

The lower interest rate on loans would encourage entrepreneurs to borrow money from banks for business purposes and generate job opportunities. Prior to this, the interest rates charged on loans were high compared to those in other countries, which hindered the productivity of manufacturers and farmers.

One of the main points to note is that the interest rates offered on accounts that have been in existence for several years is not significantly different to those offered for an account that has been open for just one year. Previously there was a big difference between the one-year and long-term interest rates.

According to BCEL, a savings account now attracts just 1.91 percent. A 3-month deposit account attracts 3.20 percent interest, 4.02 percent is paid for a 6-month deposi t, 5.72 percent for a 12-month deposit, 6.90 percent for a 36-month deposit, 6.97 percent for a 48-month deposit, and 7.04 percent for a 60-month deposit. Banks also lowered interest rates last year which was viewed as a major change in the banking sector, with the government wanting to lower the interest charged on loans to spur business growth.

At that time, a savings account at BCEL attracted 1.96 percent interest, a 3-month deposit account attracted 3.34 percent, 4.22 percent interest was paid for a 6-month deposit, 6.13 percent for a 12-month deposit, 11.50 percent for a 36-month deposit, and 12 percent for a 48-month deposit.

Meanwhile interest rates on Thai baht and US dollar accounts have risen, as these currencies are in high demand in Laos because businesses need them to pay for imported goods.

BCEL now offers 1.5 percent interest on a US dollar savings account and 0.90 percent for Thai baht, while a 3-month US dollar deposit account attracts 1.65 percent interest and a 3-month baht deposit account attracts 1.40 percent interest.

For 6-month deposits, 2.40 percent (US$) and 2.15 percent (baht) will be paid; for 12 months the interest paid is 3.40 percent (US$) and 3.15 (baht); for 36 months the interest is 5.90 percent (US$) and 5.65 percent (baht); and for 60 months the interest is 6.65 percent (US$) and 6.40 percent (baht).

Phongsavanh Bank’s interest rates are even higher: 6 percent (US$) and 5.75 percent (baht) for 12-month deposits, 7 percent (US$) and 6.75 percent (baht) for 24-month deposit accounts, and 7.50 percent (US$) and 7.25 percent (baht) for 36-month deposit accounts.

The longer term interest rates for kip accounts are not significantly different from those offered for Thai baht and US dollar accounts given that banks are keen to accumulate more foreign currency.