Financial Crime World

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Offsite Supervision and Data Quality in Lao PDR Banking System

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Introduction

The banking system in Lao People’s Democratic Republic (Lao PDR) has undergone significant changes, including the transition to Risk-Based Supervision (RBS). This report focuses on offsite supervision, data quality, and performance ranges, highlighting areas for improvement and providing recommendations for enhancing the risk-based supervision framework.

Key Findings

The following key points have been identified:

Offsite Supervision

  • The transition to RBS has led to the completion of Internal Peer Review (IP) Risk Assessment Sheets (RAS) for all banks in Lao PDR.
    • This achievement demonstrates progress towards a more effective supervision framework.

Data Quality and Performance Ranges

  • Real bank examples have identified data issues related to:
    • Liquidity measures
    • Total net open position in foreign currencies
    • Calculation methods
    • These issues highlight the need for improved data quality and consistency across the banking sector.

Systemic Report

  • The report is a valuable tool for senior management of the Bank of Lao (BoL), providing clearer prudential and risk ratios by institution type and time period.
    • This increased transparency will enable more informed decision-making and better oversight of the banking sector.

Recommendations

To address the identified areas for improvement, the following recommendations are proposed:

Offsite Supervision

  • Implement revised RAS and IP format for all banks starting from 2019:3Q.
    • This will ensure consistency and alignment with international best practices.
  • Evaluate and supervise multiple branches of the same bank as a group, preparing one IP, one RAS, and one ROX (Risk-Return Optimization).
    • This approach will enable more effective risk assessment and supervision.

Data Quality and Performance Ranges

  • Enhance liquidity indicators presented in RAS; clarify calculation of total net open position in FX to capital ratio.
    • Improved data quality and consistency will lead to more accurate risk assessments and better decision-making.

The report emphasizes the importance of continuous improvement in offsite supervision, data quality, and systemic reporting. By implementing these recommendations, Lao PDR’s banking sector can enhance its risk-based supervision framework, promoting a safer and more stable financial system for all stakeholders.