1. U.S. Embassy Laos Business Mission May 7 th 2008 Lao Plaza Hotel Allan Marlin Managing Director

2. Background The Financial Sector has been going through a period of change since 1988 The sector remains shallow-limited financial intermediation and without significant out reach at this stage The sector consists exclusively of banks’ Two Insurance companies, no leasing company, and no other non-bank financial institutions Financial services reach is limited to about 13% of the population

3. History March 1988 Decree 11 on the Reform of The Banking System separating banking functions from central bank functions 1989 Foreign Banks allowed to operate within Lao PDR June 1990 Central Banking Law Two tiered system of Banks Introduced Four Regional Banks formed 1990-1991 to provide services to the province Capacity restraints, Directed and Policy Lending resulted in substantial NPL burden Problems recognized and Banking sector reform commenced under auspices of ADB program

4. History (2) Provincial Banks merged from 6 to 2 Decree 40/PM promulgated April 2000 on the Organization & Activities of BOL Law 01/OP issued August 2002 on governing the management of foreign exchange & precious metals New Law on Commercial Banks 03/NA introduced December 2006

5. Condition of Banks’ Prior to Commencement of Banking Sector Reforms The financial performance of the State Owned Banks was not satisfactory Historical Nonperforming Loans (NPLs) represented the most serious financial issue Banks are exposed to foreign exchange movement risks and highly vulnerable to local currency depreciation High cost of operations and due to inefficiencies

6. Today Three state Owned Commercial Banks (SOCB) in Lao PDR holding 51% of the formal market; The largest is Banque Pour Le Commerce Exterieur Lao (BCEL); 7 foreign Banks; six are branches of Thai banks,one a branch of a Malaysian bank, two private commercial banks and two Joint Venture Banks Two insurance companies; Micro-finance and community banking initiatives; Two new bank licenses issued

7. Commercial Banking Law 2006 & Regulatory Environment Registered capital 100 billion LAK Capital Adequacy ratio 8% 25% of capital to be retained in BOL as a reserve Large exposure limit to single customers limited to 25% of capital Contains details of Board and Governance structures Limit on FX open position

8. Foreign Currency LAK, USD,THB cash are freely tradable and convertible Payments are governed by the 2002 law on Foreign Exchange Invoices for payment within Laos must be in the local currency Payment for goods & services overseas are allowable against appropriate documentary evidence Residents and non residents allowed to open foreign currency accounts Offshore bank accounts require BOL approval Import of capital requires a BOL importation of capital certificate

9. Foreign Investment Law  Issued 2005  All Foreign Investors are required to obtain approval & issuance of a foreign investment certificate from the Ministry of Planning and Investment  Allows repatriation of capital & profits providing all tax & labor commitment are in order  Note – Capital repatriation must be in line with capital importation certificate - BOL approved  Expatriate employees able to remit salaries offshore