IFC, the private sector arm of the World Bank Group, has made its first-ever financial market and equity investment in Laos with the acquisition of 10% of the share capital of Vientiane Commercial Bank, a leading private sector bank in the country.

The US$2.1mn investment will help the bank upgrade its governance, management, and commercial operations, thereby improving the provision of private sector banking services.

The banking sector in Laos is primarily dominated by state-owned commercial banks, and services, particularly to small and medium enterprises, are severely limited.  It is estimated that only five percent of the population has a bank account. The project combines IFC’s financial products and advisory services to strengthen the country’s private sector banking system and support economic growth.

“This project will build our capacity to deliver and expand quality banking services to our clients, as well as contribute to the development of the Lao economy,” says Sop Sisomphou, chairman of VCB. “We look forward to building a long-term relationship with IFC and drawing on its global knowledge and expertise.”

Working closely with ANZ, which will acquire 60% of VCB, IFC will help the bank develop its products and services, particularly to its core customers in the retail and small and medium enterprise sectors.

IFC Advisory Services for the Mekong region, the Mekong Private Sector Development Facility, will work closely with VCB to help build its capacity in trade finance, design of and training for a social and environmental management system, and training for credit assessment of micro and small business lending. The project will also help test the new law on commercial banks, drafted with IFC’s support and launched in January 2007.

The law was designed to create a more favourable legal framework and a level playing field for private sector banks.

“This project will establish a complementary relationship among the local owners, Australia and New Zealand Banking Group, and IFC to help improve VCB’s products and services, thereby strengthening the banking sector in Lao PDR,” says IFC country manager, Sin Foong Wong. “We are pleased to be working with the country’s leading private sector bank on this pioneering project.”

“Access to finance is a key challenge for small businesses in Lao PDR. Supporting VCB will help expand its private sector banking services and support economic growth,” adds IFC director for East Asia and Pacific, Richard Ranken. “IFC is delighted to be working with VCB and ANZ on this partnership, which supports our strategic priority of development in frontier markets.”