Lao People's Democratic Republic - Banking and securities



The central bank, the Bank of the Laotian People's Democratic Republic, regulates a rapidly expanding sector comprising 13 national and foreign-owned banks under the terms of the Commercial Bank and Financial Institutions Act of January 1992. Most of the wholly foreign-owned banks are Thai (such as the Thai Military Bank and Siam Commercial) and many of the joint-venture banks are backed by Thai financiers (such as the Joint Development Bank). The central bank continues to receive technical assistance from multilateral lending agencies, and is gradually strengthening the prodential framework. The banks are now believed to be more efficient. The largest commercial bank, established in 1953, is the Bank of Indochina.

The large-scale flight of foreign currency that accompanied the Pathet Lao's ascendancy to power led the new government to shut down Vientiane's banks in September 1975. Officials subsequently announced the expropriation of most private accounts, claiming they were the property of former rightists and "traitors."

Banking reforms of the 1988-89 period opened Laos to foreign banks. Banks in Laos include: Banque Pour le Commerce Exterieur Lao, Joint Development Bank, Nakhonelouang Bank, and the Vientiane Commercial Bank.

All banks now provide basic business services and offer a range of deposit and credit facilities. Interest rates are increasingly responsive to market conditions but tend to remain close to rates set by the central bank. Public confidence in the banking system as measured by the level of domestic capital mobilization is still low. Until 1988 the wholly state-controlled system serviced the needs of the command economy, offering uncompetitive rates of interest to savers or producers in need of regular credit. Most families continued to save by investing in gold and jewelry. The system suffered severe liquidity problems in 1990-91 when the "privatization" of former state-owned enterprises was at its peak: old debts were not repaid and new capital arriving as a result of the opening of the economy to foreign investors was coming in too slowly. Laos was badly hit in 1997 by the Asian financial crisis, leading to further liquidity problems in 1998. The International Monetary Fund reports that in 2001, currency and demand deposits—an aggregate commonly known as M1—were equal to $41.5 million. In that same year, M2—an aggregate equal to M1 plus savings deposits, small time deposits, and money market mutual funds—was $286.4 million. The discount rate, the interest rate at which the central bank lends to financial institutions in the short term, was 35%.

There is no stock exchange.

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