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April 1, 2020

Laos Issues Credit Policy Guidelines for Debt Management during the COVID-19 Crisis

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The Bank of Lao PDR (BOL) has issued guidelines to provide relief to debtors affected by the current crisis. The Decision on Policy in respect of Loans to Provide Remedial Measures Due to the Impact of the COVID-19 Pandemic no.238/BOL, dated March 26, 2020, aims to assist individuals and legal entities that have contracted with Lao commercial banks and financial institutions on loan agreements, and for whom the originally agreed upon repayment terms can no longer be met due to the COVID-19 crisis. It encourages commercial banks and financial institutions to apply a series of measures in order to help affected debtors during the crisis. 

Commercial banks and financial institutions are additionally provided with a series of relief measures to limit the impact of granting such measures on themselves (although these are not yet sufficiently defined to be of practical application without further clarification and guidance). Commercial banks and financial institutions are also prohibited from profiting from the current situation or using it to manipulate the quality of certain credit.

The guidelines for assisting debtors include:

  • Revising the debt structure of affected debtors by agreeing on new installments for the principal and interest, and revising interest rates to be consistent with the actual condition of the debtors. Accordingly, debtors should be granted a grace period of at least one year to pay the principal and the interest.
  • Providing new loans to debtors and those affected by the virus outbreak in order to help them maintain their business operations.

The BOL also requires commercial banks and financial institutions who implement such measures to devise standardized rules, procedures, and documents for debtors to avail themselves of the remedial measures, and to send a report to the BOL every month detailing any such measures applied for and granted. 

Since there are no mandatory provisions for commercial banks and financial institutions to accommodate debtors in the present situation, it is difficult to foresee how effective these voluntary guidelines will be. In addition, many of the measures prescribed in the decision require further clarification, and although further information may come in due course, some may be reluctant to implement until it is available. 

However, there will undoubtedly be strong encouragement from the authorities for easing the impact on debtors as much as possible. The Lao government has committed itself to the development of SMEs during recent months, and the present crisis may affect the support that has been provided thus far. The government may therefore move to strengthen these provisions as the situation develops. 

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