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ACLEDA Bank Lao Ltd.

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Managing Director & CEO's Report

Mr. PHON Narin, Managing Director & CEO of ACLEDA Bank Lao Ltd.

"During 2016 ACLEDA Bank Lao Ltd.'s overall performance is a testimony to the soundness and preparedness of the Bank and its stakeholders in response to the reality of the market place which included the Bank's compliance with amendments to new banking regulations introduced during the year. The Bank's achievements included corrective actions on its internal policies, the continued upgrading of human resource capacities, and the maintenance of a work culture to parallel the standards of our parent company, ACLEDA Bank Plc., Cambodia. Moreover, results did turn around with a good quality and quantity growth of loan assets, and domestic savings in local currency LAK. 2016 is viewed as one of the most stable environments for doing business where both the Bank and its customers took the opportunity to grow together, while we continued to offer our valued customers the most secure financial services and products via the Bank's extensive office network, self-service facilities, ATMs, and points of sale."

Performance in 2016

Competitive Environment

Laos' financial market with its liberal regulatory environment is highly competitive with more than 42 private and state owned commercial banks, which include 96 branch offices, 486 services units, and 1.087 ATMs. Moreover, there are more than 142 increasingly aggressive licensed microfinance institutions. This environment obliged the Bank of Lao to update and amend regulations and bank related articles that implemented a continued decline of interest rates on deposits and loans, a restriction on loan fees by commercial banks, while amending the primary level of compulsory reserves, introducing stricter controls on currencies exchanges and the use of foreign currencies, and promoting the use of the local currency (Lao Kip). In spite of this, amongst the private commercial banks ACLEDA Bank Lao Ltd. managed to maintain its position as market leader in terms of retail banking, the number of offices, and small business lending to Laotian entrepreneurs in remote areas covering 15 provinces and cities amongst the 18 provinces and cities of the Lao PDR.

Operational Performance

  • 2016 witnessed a generally stable environment. However, commercial banks in Laos were obliged to lower their interest rates for both deposits and loans, and restrict loan fees in line with a decision made by the Bank of the Lao PDR, which sought to reduce loan rates and thereby stimulate economic activity. This was a major change for the banking sector as the government wanted to continue to decrease the loan rate, a decision designed to promote and boost domestic productivity for commercial purposes. Since the lower interest rate was announced, the number of deposits made and loans issued by commercial banks dropped over a short period of time. Lao currency deposits attracted interest rates averaging 7,7 percent per annum at the end of 2015, which then fell to an average of 4,55 percent per annum by December 2016.
  • To ensure the announcement took effect, the BOL continued to inspect the operations of commercial banks to ensure the adjustment of deposit and loan rates was properly carried out and regulations were complied with, including a 4 percent net-weight gap between deposit and loan rates.
  • Given the corrective actions of the Central Bank concerning prudential standards with respect to the provision of loans in foreign currencies, ACLEDA Bank Lao Ltd.'s efforts to manage its outstanding loan portfolio resulted in 95,17 percent of this portfolio maintained in Lao Kip, an increase of 12,36 percent compared with the end of 2015, while the overall banking sector was at 33,16 percent for 2016, an increase of 0,16 percent compared with the end of 2015.
  • ACLEDA Bank Lao Ltd. took adequate measures to improve its liquidity and loans portfolio in local currency, by expanding the number of active borrowers among small businesses. The number of Small1 loan clients grew by 13,25 percent and Small2 loan clients by 38,81 percent of active loan clients compared with the end of 2015.
  • Value of Small1 Loans grew by 8,01 percent and Small2 Loans grew by 42.42 percent of the gross loan portfolio outstanding.
  • Retail deposit savings accounts in Lao Kip grew by 21 percent, and total deposits consolidated at USD 86,69 million. This growth was mainly led by first time depositors such as factory employees paid through our Payroll Service, and cash collection service. As well, savings accounts increased from new customers. An important factor in the growth of deposits was the continuing development and expansion of our automated delivery system, which at the end of 2016 comprised 45 ATMs and 100 POS terminals throughout the country with 29.810 cards issued.
  • The Bank continued its cost reductions and risk control to maximize income. Non-performing loans in 2016 were maintained below 0,81 percent while the overall banking sector was 3,25 percent, and the Bank's total portfolio outstanding increased by 22 percent compared with the end of 2015.
  • In 2016 ACLEDA Bank Lao Ltd. posted a record profit which resulted from our high margin loans to small businesses, while the bank's operating efficiency ratio improved from 61,16 percent to 53,20 percent. Its Return on Assets (ROA) was 2,72 percent and Return on Equity (ROE) was 11,67 percent, compared to the overall banking sector ROA of 0,06 percent and ROE of 0,82 percent at the end of 2016.

Strategic Priorities

  1. Maintain a strong capital base with Capital Adequacy Ratios comfortably exceeding regulatory requirements;
  2. To expand our retail banking services throughout the Lao PDR with a special focus on providing tailor made financial services to small business enterprises;
  3. Concentrate on developing our "service culture" personal accessibility for our customers, and grow our services as the market expands by adopting the best practices of our parent company;
  4. Follow our customers' needs by providing a comprehensive range of financial innovations as they move up the wealth ladder;
  5. Focus on expanding value added fee-based services to diversify the income stream and reduce dependence on capital;
  6. Develop and upgrade Electronic Banking Service (EBS) with Financial Technology Solution (FinTech) and Branchless in order to expand outreach, increase income efficiency, create cross-selling opportunities, offer a competitive advantage, and conveniently serve a broader customer base, by using a direct line between ACLEDA Bank Lao Ltd. and our parent company's Electronic Banking Services (ACLEDA Bank Plc., Cambodia).
  7. Enhance our risk management function and embed ‘risk awareness' into our daily working practices;
  8. To invest in multi-channel systems for the Bank's operational improvement and customer satisfaction while significantly reducing operational risks by automation rather than manual procedures; and
  9. Enhance the delivery system for products and services and shorten the workflow/process-flow by focusing on delegation of responsibility and authority down to front-line management and staff while decreasing paper work to guarantee quick service to customers for maximizing productivity by letting staff cross-function.

To all our customers, my colleagues on the Board of Directors, Shareholders, management and staff, our professional consultants, and not least the Government and the Bank of the Lao People's Democratic Republic, I offer my sincerest thanks both for your support in 2016 and in anticipation of a happy and prosperous 2017.

Mr. PHON Narin
Managing Director & CEO
March 13, 2017

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