On June 7, 2019, Laos’ official electronic gazette published the updated Law on Commercial Banks No. 56/NA, as amended, dated December 7, 2018. The law came into effect 15 days after its publication in the gazette. Banks already established in Laos have two years to implement the new rules, except the increased minimum registered capital requirements for which they have five years.
The minimum registered capital has been raised from LAK 100 billion (approx. USD 11.5 million) to LAK 500 billion (approx. USD 58 million), while the minimum registered capital for Lao branches of foreign commercial banks has been raised from LAK 50 billion (approx. USD 5.8 million) to LAK 300 billion (approx. USD 34.5 million).
Appointment of Executives
Appointment and dismissal of executives must receive consent from the Bank of the Lao PDR (BOL), though the extent of the BOL’s scrutiny is not mentioned in the Law on Commercial Banks. Executives of a commercial bank are defined as members of the board of directors or its component committees, members of the directors’ council, department heads, and branch heads.
The updated law also clarifies a number of governance structures, including the board of directors, its component committees, and the director’s committee (consisting of the director and deputy director, responsible for acting on various issues as the legal representative of the company). It also details procedures for appointing and dismissing executives, which requires the consent of the BOL, and for scheduling and conducting shareholders’ meetings.
On a monthly, quarterly, and annual basis, commercial banks must produce a financial report, a cash flow report, and a report on operations. This information, and information on the soundness of the commercial bank, must be made available via the bank’s website or another publicly accessible platform. Bank clients and the BOL must be also notified about the availability of the reports.
Preventive and Remedial Measures
In addition to meeting requirements for maintaining adequate capital—which can vary based on the BOL’s determination—there is a new obligation for commercial banks deemed important to the stability of the Lao banking system to devise plans for handling financial, economic, or other relevant crises. The plans must be in accordance with BOL policy and must be updated annually.
For more information on this development, or for any other queries about the banking and financial industry in Laos, please contact Tilleke & Gibbins at [email protected].