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ACLEDA Bank Lao Ltd.

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Chairman's Report

Dr. IN Channy, Chairman of the Board of Directors of ACLEDA Bank Lao Ltd.

In Lao PDR, real GDP growth is expected to moderate from 7,5 percent in 2015 to 7 percent in 2016. Domestic activity has slowed following a less favorable external environment, and credit growth has also moderated from a high level. Inflation is expected to remain low and stable at around 2 percent at the end of 2016, aided by a strengthening of the Kip exchange rate. The current account deficit is expected to remain high at 17 percent of GDP in 2016 but has narrowed from 20 percent of GDP in 2014. Gross international reserves, at two months of prospective imports of goods and services (USD 998,6 M, September 2016) remain low by partner country standards. While the overall banking system is well capitalized, state-owned bank balance sheets show signs of weakness, with rising non-performing loans (NPLs) and weak capital and profitability. The fiscal deficit is expected to have widened to 6 percent in fiscal year 2016 owing to weak tax revenue growth and rising current spending. Public-and-publicly-guaranteed debt (excluding arrears) is projected at 68 percent of GDP in nominal terms (56 percent of GDP in present value terms) at the end of 2016, a level that elevates the risk of debt distress from medium to high.

As growth continues to moderate in the near-term, inflation is projected to remain in low single digits. The current account deficit is projected to widen to around 19 percent of GDP in 2017 due to the execution of large infrastructure projects with foreign direct investment, and reserves are expected to remain at around two months of imports. On current trends without the resumption of fiscal consolidation, the fiscal deficit is expected to remain at around 5 percent and public debt could rise to around 70 percent of GDP. Risks are on the downside. A failure to consolidate the fiscal position and bring down public debt could undermine confidence in the government's macro policy framework, raise public debt further and worsen the country's external position. The economy is also exposed to external shocks, notably a further regional growth slowdown and a deterioration in terms-of-trade and capital inflows. Financial risks could also present risk to macroeconomic stability, particularly the growing foreign currency debt financed by foreign borrowing, and the existence of balance sheet currency mismatches in the private non-bank sector. However, Laos is making progress on improving its business climate, and it is very important for the Lao PDR to continue these reforms to help the country sustain its high growth and make it more inclusive for businesses to flourish while creating more jobs in the country.

Foreign Direct Investment

Recent trends in manufacturing are expected to continue while the liberalization of air transport is expected to give a boost to tourist arrivals. Fiscal expansion is expected as Lao PDR hosted ASEAN chairmanship events in 2016. The current account deficit is expected to narrow to about 10,4 percent of GDP with exports growing by about 7 percent as a jump in electricity export and continued export of parts and components to Thailand is expected to more than offset a risk of further slowdown in external demand for other exports. Imports bill growth is expected to remain contained as oil prices remain depressed in 2016. However, there are a number of downside risks. External risks come from a faster-than-expected slowdown in China, prolonged weak growth in Thailand as well as further declines in commodity prices. China accounts for 25 percent of Lao PDR exports; and is among the top three largest sources of FDI and among the top ten biggest sources of tourist arrivals, all of which will be affected by a sharper slowdown in China. Similar concerns apply to Thailand, which is also an important migrant worker destination and significant export market. The impact of the decline in commodity prices appears to have been contained, with the exception of rubber; however, further price declines may have a larger impact. Additionally, domestic economic risks remain elevated, including risks in the banking sector that some banks may continue to have limited capital buffers and poor loan portfolios. On the external front, the current account deficit declined to 8,5 percent of GDP for the first three quarters of 2016, as a result of improvements in the trade balance and transfers while FDI flows remained high. International reserves at the end of September stood at USD 998,59 M, equivalent to 6,44 months of imports.

Banking Sector

In the second quarter of 2016, the economy of the Lao PDR continued to expand; the monetary situation remained stable; headline inflation recorded at 1,25 percent, increased by 0,15 percent from the previous quarter; money supply (M2) at LAK 61.202,88 B, rose by 2,67 percent compared to the previous quarter; the exchange rate remained relatively stable with the LAK appreciating by 0,32 percent against the USD; gross international reserves were equivalent to 5,4 months of prospective imports. In this quarter, the trade value reached USD 2.052,39 M of which the value of exports reached USD 865,62 M, an increase of 1,07 percent, and the value of imports reached USD 1.197,77 M, a decrease of 2,20 percent compared to the previous quarter. Furthermore, the banking system continued to be safe and sound, such that the total credit and deposits of commercial banks rose by 7,11 percent and 3,49 percent, respectively. There are now a total of 42 commercial banks, which includes 96 branches, 486 service units, 35 exchange bureaus and 1.087 ATMs. Microfinance institutions now total 142, an increase of two institutions from the previous year.

Economic Outlook 2017 in Lao PDR

GDP growth is expected to moderate to 6,8 percent in 2017 and 2018, and to rise to around 7 percent in the medium-term, supported by a resumption of resource related FDI (mainly hydropower). Inflation is expected to remain moderate at around 3 percent. The baseline scenario assumes a rise in the fiscal deficit to around 6 percent of GDP in FY15/16. Over the medium term the deficit is expected to improve gradually to 5 percent of GDP as overall revenues recover and expenditure is contained. The current account deficit will widen slightly reflecting higher imports to support hydroelectric and railway projects, financed by private capital inflows, but will narrow by 2021 as project related imports fall and electricity exports come on line. Gross international reserves are expected to remain low at around 1,5 months of imports. Credit growth is projected to remain at around 20 percent in 2016-2017, broadly supportive of growth but below a rate that, in the Bank's assessment, would raise concerns about financial stability. Under an adjustment scenario with a resumption of fiscal consolidation, greater exchange rate flexibility, bank recapitalization and structural reforms, short-term growth would be lower but the medium-term growth path would be more robust and near-term vulnerabilities would be reduced.

Government revenues and expenditures each year are set to be USD 13 B and USD 18 B, respectively, for the 2017-2020 period. During this period, the deficit should not exceed 4,4 percent of GDP. On December 1, the Asian Development Bank (ADB) announced that an agreement had been reached for an ADB related project that seeks to expand economic corridor networks in the Mekong region. The USD 32,7 B project will improve connectivity between the region's capitals, which will likely boost Laos' economy. The power sector keeps investments strong and should increase electricity production and exports by almost 40 percent. Stabilization of growth rates in China and some acceleration in Vietnam and Thailand should increase demand for Lao PDR exports. On the other hand, some gradual fiscal consolidation is expected, largely through broadening the revenue base and efforts to improve efficiency in spending and which should help strengthen the outlook for public debt sustainability and lower the risk of debt distress from its current moderate level, but bordering close to high.

Significant Decisions of the Board of Directors and Achievements of ACLEDA Bank Lao Ltd. in 2016


The board met face-to-face four times in March, June, September and December during the course of 2016 and in addition the Board passed 14 resolutions by e-mail. Our main activities in 2016 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 Shareholders appoint PricewaterhouseCoopers (PwC) as the external auditor for 2016.
  • Approved the engagement of PricewaterhouseCoopers (PwC) as the external auditor of ABL for 2017-2018.
  • Approved the Audited Financial Statements and Annual Report for the year 2016.
  • Reviewed and approved the Business Plan, Budget and Capital Expenditure Plan, and Funding Strategy 2017.
  • Reviewed and approved agreements between ACLEDA Bank Lao Ltd. and Prudential Life Assurance (Lao) Company Limited.
  • Reviewed and approved the Amendment of the TOR of the Board Audit Committee.
  • Reviewed Reports of Board Committee Chairmen and Chairwoman on their committee activities.
  • Discussed and approved the resignation of a Board Member and the nomination a new Board Member.
  • Reviewed and approved the AML/CFT Policy.
  • Reviewed and approved the Amendment of the Credit Policy.
  • Approved amendment of SSA and MAOA and proposed to Shareholders for final approval.

During 2016, there were a number of changes in the governance of ACLEDA Bank Lao Ltd. The most significant of which was Mrs. Kim Sotheavy's resignation, after serving nearly two years on the Board of Directors, to avoid conflicts with the role and responsibilities of the Group Chief Internal Audit Officer. As our new Board of Director member, Mr. Ian Samuel Lydall has had a long and distinguished career with extensive and in-depth experience in financial services. The Chairman of the Board of Directors of ACLEDA Bank Lao Ltd. thanks Mrs. Kim Sotheavy for her role and responsibilities as one of the members of the Board of Directors. The chairman also welcomed Mr. Ian Samuel Lydall as a new member of the Board of Directors and the new chairman of the Audit Committee.

Achievements of ACLEDA Bank Lao Ltd. in 2016

At the end of December 31, 2016, ACLEDA Bank Lao Ltd. had 1.143 staff working in 41 offices nationwide. It had total assets of USD 154.711.747, gross loans outstanding of USD 119.393.436 and a balance of deposits of USD 86.692.352.

From a performance perspective, we are pleased to report that ACLEDA Bank Lao Ltd. had its fourth consecutive year of growth in terms of income by 29 percent. Over the year our lending grew by 70 percent and our deposits by 1 percent, while our assets increased by 11 percent. The loan increase stemmed mainly from an increase in loans to Small 2 and Small 3 enterprises.

In closing, we would like to express our sincerest gratitude to the Government of Lao PDR, the Bank of Lao PDR, regulators, all relevant authorities and our customers for their support and our gratitude to the management and staff for their efforts. Our Board and staff remain committed to building ACLEDA Bank Lao Ltd. into the best bank in the Lao PDR.

Dr. IN Channy
Chairman of the Board of Directors
March 13, 2017

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