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Banking and Microfinance Sector in Lao PDR
The banking sector continued to expand with the number of commercial banks rising to 40 banks. They remain broadly sound with adequate liquidity and an average capital adequacy ratio above the minimum ratio of 8 percent, which is now about 20 percent on an aggregate level.
In maintaining stable macroeconomic conditions amid an unfavourable external environment, the Government of Lao PDR has implemented monetary and fiscal policies to safeguard economic and financial stability. On the monetary front, substantial efforts were undertaken to build up international reserves as a buffer against sudden shocks. Currency lending was suspended to local governments and to firms without the ability to generate income in foreign currencies. Close collaboration was promoted with the Ministry of Finance to resolve debt arrears associated with commercial banks. Interim measures were introduced to deal with the financial performance of banks, including the introduction of caps on deposit and lending rates in order to stimulate economic activity and to promote access by SMEs to financial resources. In the context of strengthening bank supervision, supervisory capacity and the regulatory framework are being strengthened to preserve a safe and sound banking system through revision of the existing regulatory framework, and the development of Financial Soundness Indicators (FSI) with technical support from the World Bank. More importantly, the AML/CFT law was recently enacted, which will help create a more favourable business environment and boost confidence in the banking system.
At the end of the third quarter in 2015, there were 40 commercial banks, 89 branches, 460 service units, 36 exchange bureaus and 1010 ATMs countrywide. Of these, there are three state-owned banks, one specialized bank, three joint-venture banks, seven private banks, eighteen subsidiary banks, and eight foreign commercial branch banks. In addition, the Bank of Laos (BOL) has promoted an expansion of microfinance institutions countrywide in order to provide broader access to diversified financial services. Recently, the total number of microfinance institutions was 142. Among these, there are 14 deposit-taking microfinance institutions, 39 non-deposit taking MFIs, 32 savings and credit unions, 28 pawn shops, 21 leasing companies, 5 transfer agencies, as well as the Laos Postal Saving Institution and two savings cooperatives.
Achievements of ACLEDA Bank Lao Ltd. in 2015
ACLEDA Bank Lao Ltd. recognizes the critical importance of corporate governance in supporting the Bank's sustainable growth, enhancing the efficiency of the Bank, creating shareholder value, and securing trust for all stakeholders including shareholders, customers, staff and the general public. The Board of Directors supports and encourages the adoption and implementation of good corporate governance policies, together with a code of conduct and business ethics.
To ensure the Bank's sustainable growth the Board met face-to-face four times in March, June, September and December during the course of 2015, and in addition the Board passed seven resolutions by e-mail. Our main activities in 2015 were as follows:
- Reviewed the Bank's quarterly Financial Reports and received progress reports on all operational aspects of the Bank's operations including services and products.
- Recommended to Shareholders to appoint KPMG as the external auditor for 2015.
- Approved the Audited Financial Statements and Annual Report for the year 2014.
- Approved the engagement of PricewaterhouseCoopers (PwC) as the external auditor of ABL for 2016.
- Reviewed and approved the Business Plan, Budget and Capital Expenditure Plan, and Funding Strategy 2016.
- Recommended and approved the Criteria for Profit Incentives of ABL for 2016.
- Reviewed and approved TORs of four Board Committees (ACO, ALCO, RMC, and Governance).
- Reviewed Reports of Board Committee Chairmen and Chairwoman on their committee activities.
- Approved the resignation of one Board Member and the nomination of one new Board Member.
- Considered and established a Board Credit Committee.
- Reviewed and approved the amendment of the Credit Policy.
- Approved the amendment of MAOA and proposed to shareholders for final approval.
- Considered and recommended management to determine appropriate criteria for a Laotian as an additional member for the Board of Directors.
- Reviewed and discussed new BOL Regulations regarding the setting of New Interest Rates.
- Approved opening LAK, USD, THB accounts with Bangkok Bank Public Company Limited.
- Approved a Code of Conduct Policy, Whistleblower's Protection Policy, and Conflict of Interest Policy.
- Proposed RENCO of Parent Company to determine Board fees and remuneration of senior management of ABL.
From a performance perspective, we are pleased to report that the Bank had its fourth consecutive year of growth in terms of income by 22%. Over the year our lending grew by 20.57%, our deposits by 10.45% and our assets decreased by 4.32%. The loan portfolio increase stemmed mainly from an increase in loans to small enterprises.
The overall results, however, were challenged by some of our customers being confronted with difficult economic times which led to an increase in nonperforming loans for which the Bank built strong provision reserves and the decrease of interest rates on deposits and loans. As a consequence of these developments and recognizing the need for stringent prudential practices, the Bank has decided to further concentrate on the small business sector and the demand for financial services in rural areas. With these measures it is expected we will make an adequate return on capital in the year 2015-2016. In 2016 ACLEDA Bank Lao Ltd. will have sufficient local currency to finance its loan growth, and sufficient targeting to achieve the Bank's goals.
In 2015, ACLEDA Bank Lao Ltd. received a Certificate of Appreciation from the Bank of the Lao PDR for Excellent Result of Implementation of CIB for the year 2014. In 2013, ACLEDA Bank Lao Ltd. received a Certificate of Appreciation from the Prime Minister of Lao PDR for Well Done Works and Excellent Achievement during the Five Years (2008-2013). ACLEDA Bank Lao Ltd. was one of two private commercial banks that have received this Certificate of Appreciation from the Prime Minister of Lao PDR. ACLEDA Bank Lao Ltd. also received a Certificate of Appreciation from the Ministry of Industry and Commerce in 2011.
This was the third time ACLEDA Bank Lao Ltd. received a Certificate of Appreciation from the government.
ACLEDA Bank Lao Ltd.'s Future Strategy
To build the Bank's sustainable growth in 2016 and for the future, the Bank has set its Medium and Long Term Strategy as follows:
- Improving the delivery system for products and services and shortening the workflow/process flow by focusing on delegation of responsibility, and authority down to front-line management and staff and decreasing paper work to guarantee quick responses to customers' needs. Maximizing productivity by allowing staff cross functioning.
- Upgrading the IT system and network infrastructure, in particular the current server and management information system in order to improve overall response time and user performance.
- Building strong staff capacity and instilling in them our core corporate values focusing on motivation, professionalism, responsibility, transparency and accountability by continuing to emphasise training to improve their efficiency and effectiveness.
- Focus on Small 1 and Small 2 loans to build up the client base as a means of increasing outstanding loans in conjunction with client growth.
On behalf of the Board of Directors, I would like to express my sincere appreciation and gratitude to the Government of Lao PDR, especially to the Bank of Lao PDR for its strong support, to our customers for their loyalty and support, and last but not least to the management and staff for their strong commitment and great efforts to build and make ACLEDA Bank Lao Ltd. a success.
Dr. IN Channy
Chairman of the Board of Directors
March 18, 2016