Debate on Law on Commercial Banks

Members of the National Assembly (Sixth legislature) on 18 December held a vigorous debate on Law on Commercial Banks, which was presented by Governor of the Central Bank of the Lao PDR last week.  

            In general, members of the National Assembly (NA) highly valued the Law on Commercial Banks, which will help the country accelerate the socio-economic development and improve living conditions of people of all ethnic groups. 

The session mentioned that if this law is adopted by the National Assembly, it            will attract more foreign investments, particularly from famous banks of the world and foreign investors. It will bring the banking sector of Lao PDR to life and funds invested in the banking and monetary sector will increase.

           Members expressed debates on the registered capital for establishing a bank, holding share in other businesses and bankruptcy. Concerning this issue, the Central Bank of the Lao PDR is authorized to permit the establishment of commercial banks. The determination states that if foreign banks propose to invest in the banking sector, they also shall follow the Investment Law of the Lao PDR. The National Assembly mentioned this point and stated that some difficulties may happen and slow down procedure. If the rule “with 10-20 days temporary permission can be gained” is set up, a commercial bank can be set up and run businesses for six months in accordance with five conditions after obtaining the temporary permission. If the investor follows the five conditions effectively, the permanent   permission will be issued. If the investor does not follow the five conditions, the temporary permission will be cancelled, except enough reasons and conditions approved.  

The debate is focused on the registered capital of 100 billion kip (about USD 10 million) for a commercial bank and the registered capital of 50 billion kip (about USD 5 million) for a branch of the bank. The session mentioned that this capital is not high, compared with the region.

            Banks have privilege to hold a share in state enterprises (not relating to banking and monetary development), for instance, hotels and industry, but the share shall not exceed 15% of the registered capital and 20% of capital that can be voted by the business unit. This termination will attract investments and enable foreign commercial banks combine their shares.

            In case of bankruptcy, like other businesses the court will make decision that shows it is bankruptcy. Before making this decision, the Central Bank of the Lao PDR is allowed to restore this business.   

This law is formulated, based on lessons and experiences gained from laws of neighbouring countries and support from the World Bank.  It is quite complete and will be adopted by the National Assembly.