On October 13, 2023, Laos’ official gazette published the amended Law on Commercial Banks No. 39/NA dated July 17, 2023. The amended law came into effect on September 15, 2023, following its promulgation by the president of Laos.
Below are some of the significant changes.
Registered Capital
Under the amended law, the minimum registered capital for establishing a commercial bank has been increased from LAK 500 billion (approx. USD 24.2 million) to LAK 1 trillion (approx. USD 48.4 million), while the minimum registered capital for Lao branches of foreign commercial banks has been raised from LAK 300 billion (approx. USD 14.5 million) to LAK 600 billion (approx. USD 29 million).
Currently, the Bank of Lao PDR (BOL) is preparing a new regulation that will define the timeframe within which banks established in Laos before the enactment of the amended law must increase their registered capital.
This change is not as significant as it may seem. Since the last Law on Commercial Banks (which also stipulated an increase in registered capital), Laos has seen a sharp depreciation of the Lao kip against foreign currencies. The increase of capital mandated by the amended law is meant to compensate for this depreciation.
Change of Status of a Commercial Bank of a Brand of a Foreign Commercial Bank
Another article in the amended law outlines two scenarios in which banks may alter their status. First, a foreign commercial bank in Laos holding 100% shares may change its status to a Lao branch of a foreign commercial bank. Conversely, a Lao branch of a foreign commercial bank may elevate its status to that of a foreign commercial bank holding 100% shares. In both cases, the bank must request a business operating license from the BOL corresponding to its new status, requiring it to meet certain conditions. Importantly, this change in status pertains only to the legal classification and is not to alter commitments to depositors and creditors, or fulfillment of tax obligations.
Appointment of the Management Board
The amended law introduces a requirement for the Management Board to meet at least once every three months; however, the law remains unchanged regarding the governance structure, number, and terms of the members of the Management Board. The board’s term also remains three years, and members may be consecutively reappointed for up to three terms.
The Management Board continues to consist of at least five members (i.e., a chairman, a deputy chairman, and other members appointed by shareholders with approval from the BOL). Among those members, one must be an “external member”—that is, someone who is not an employee, has no family relatives in the bank, and has no contractual relationship or business benefit with any shareholders or board members of the bank.
The qualifications are not dramatically amended in the new law. The members should have a “good history,” and a new emphasis is placed on members not having been sanctioned for misdeeds, such as asset misappropriation, document forgery, money laundering, financing of terrorism, human trafficking, bribery, narcotics offenses, or wrongdoings in relation to finance, currency, or corrupt behavior.
The Management Board is still assisted by the mandatory committees (i.e., Governance Committee, Risk Management Committee, Audit Committee, and any other committee deemed necessary by the Management Board).
Recordkeeping
The amended law provides that the following documents must be kept at the bank’s headquarters:
- Articles of association, internal policies, handbooks, and other required documents;
- Shareholders’ registry;
- Records and resolutions of the shareholders’ meetings;
- Records and resolutions of the meetings of the Management Board and its committees;
- Records of the status of the business, the bank’s transactions, and other financial matters;
- Records of each customer’s transactions, credit documents, and accounts;
- Internal and external audit reports; and
- Other documents deemed necessary by the BOL.
For branches of foreign commercial banks, documents must be kept at the branch established in Laos.
Previously, the law provided that documents, along with electronic records, must be kept for at least ten years. The amended law now adds that this information must be kept 10 years after the relevant document or transaction is effectuated or from when a contract is terminated.
Lao Bankers’ Association
The amended law establishes the Lao Bankers’ Association (LBA) for the purpose of managing and coordinating activities between commercial banks in Laos. The LBA’s objectives include providing assistance, holding consultations, facilitating exchanges on various banking matters, enhancing banking business operations and experiences, and addressing issues or concerns of the LBA’s members with relevant government agencies. Both commercial banks and Lao branches of foreign banks are to hold equal membership status within the LBA, and the LBA’s activities must be conducted in accordance with its articles of association, which have been approved by the BOL.
Takeaways
The amended Law on Commercial Banks updates some of the rules for Laos’ banking system while maintaining a steady continuation of most existing principles and guidelines. Commercial banks in Laos (including branches of foreign banks) should ensure timely compliance with the changes—particularly the increased minimum registered capital requirements—and take note of how the country’s regulatory environment for commercial banks is evolving.
