National Banking Organizations Face Challenges, Recommendations Issued

A recent assessment of national banking organizations in Lao P.D.R. has identified several areas for improvement, with recommendations issued to enhance supervisory responses, offsite supervision, and data quality.

Supervisory Responses

The report highlights the need for revisions to regulations related to supervisory responses, including “Early Intervention” No. 811 and “Bank Resolution.” The Bank of Lao (BoL) has requested technical assistance from the World Bank for this process. However, the assessment team cautioned that the BoL should not delay implementation of much-needed corrective actions.

• Establish memoranda of understanding (MOUs) with home country regulators for all banks operating in Lao P.D.R.
• Consider applying qualitative criteria for foreign bank branches (FBBs) mentioned above in assessing the “M” component of the CAMEL rating.

Offsite Supervision

The assessment team found that offsite supervision was an area for improvement. Recommendations include:

• Implement revised risk assessment and supervision (RAS) documents and institution profile (IP) formats for all banks starting from 2019:3Q.
• Evaluate and supervise multiple branches of the same bank as a group, preparing one IP, one RAS, and one report of examination (ROX).

Data Quality

The report highlighted data quality issues, including:

• The need for additional indicators of liquidity
• Clarification on the calculation and monitoring of total net open position in foreign currencies
• Reviewing the calculation of total net open position to ensure harmonization with international standards

Systemic Reporting

The assessment team welcomed discussions about a report on the banking system drafted by offsite supervisors. The report provides clearer prudential and risk ratios by institution type and time period, but some data could be presented better in table format rather than narrative text.

Conclusion

Overall, the assessment aimed to provide recommendations for strengthening national banking organizations in Lao P.D.R., with a focus on enhancing supervisory responses, offsite supervision, and data quality.