Credit growth remains high
Credit growth remains high
Domestic banking credit growth in Laos has slowed down but still remains high, according to a report from the World Bank.
The Lao PDR Economic Monitor, which was released in Vientiane last week, shows credit growth was driven mainly by private sector credit, which saw 37 percent growth year on year at the end of September 2013.
Credit to state-owned enterprises including Bank of the Lao PDR direct lending to local infrastructure projects grew at 13 percent over the same period last year, despite the central bank reportedly committing to ease lending to finance new government projects.
Economists say that while credit growth has played a significant role in boosting socio-economic development in recent years, one of the major risks Laos faces is a decline in foreign reserves.
Credit growth has resulted in an increasing demand for imported goods, one of the main reasons for the higher demand for foreign currency, they noted.
According to the Lao PDR Economic Monitor, foreign exchange reserves and net foreign assets continued to fall in the third quarter of 2013. Reserves were recorded at US$580 million in September and were expected to reach US$600 million by the end of 2013. This would be the lowest level in a decade, allowing for only 1.3 months of goods and service imports.
The decline in foreign reserves means it is difficult for Laos to absorb any adverse shock. To address this challenge, the Bank of the Lao PDR has instructed commercial banks to tighten foreign currency lending to businesses that have insufficient foreign currency earnings to limit cash withdrawals from foreign currency accounts.
Economists also said rapid credit growth would make it tougher for Laos to ensure the security of commercial banks. However, according to the World Bank report, Non Performing Loans have now fallen below 4 percent.
Experts also pointed out that most bank loans were used to finance infrastructure and real estate projects, which provide long term benefit. Most loans are sourced from short term deposits, they said.
They advised that banks should provide more loans for food production activities, adding that this would not only help banks to collect debts from borrowers more easily but would also keep food prices lower.
Food prices have been rising due to short supply and rising demand caused by an influx of foreign migrants.
There are at least 30 commercial banks in Laos due to the government's policy to promote investment in the sector. The o bjective is to enable Lao people to access to finance to expand business operations, which would in turn create more jobs.
vientiane times
