The Asian Development Bank (ADB) has approved a US$4mn technical assistance loan to improve governance and financial performance of state-owned commercial banks in Laos.
Although the government has succeeded in stabilising the economy, comprehensive operational restructuring in the banking sector is needed to propel Laos to the higher growth path needed for sustained poverty reduction.
The project supports operational restructuring of banks by introducing modern banking policies and procedures. It will do so by:
- Improving transparency in banking operations.
- Implementing corporate decision making through board and management committees.
- Resolving nonperforming loans through a case-by-case focus on cash recovery and legal action.
- Ensuring that new flows of credit are secured by cash flows.
- Introducing a client-and-business orientation in banking relationships, particularly in assisting small and medium enterprises (SMEs) to present bankable projects.
- Reducing costs through better economies of scale.
- Introducing more advanced automation for banking operations.
The project will lead to greater transparency, certainty and predictability in commercial bank transactions, particularly the initiation of loans and the enforcement of loan and security obligations. This in turn should make the banking sector more stable and conducive to private sector development and therefore support macroeconomic stability and sustained poverty reduction.
The loan is being made from the Asian Development Fund and has a maturity of 32 years, including a grace period of eight years.
The Bank of Lao PDR is the project’s executing agency.