BOL bans banks from hiking interest rates
BOL bans banks from hiking interest rates
The Bank of the Lao PDR has announced that it will no longer allow commercial banks in Laos to independently raise the interest rate paid on deposit accounts.
Governor of the central bank, Mr Somphao Phaysith, made the announcement at a recent meeting between cabinet members and provincial governors. The banking regulator did not give any reason for the decision.
Mr Somphao said the central bank would set regulations for commercial banks to follow that would enable them to offer more reasonable interest rates. In principle, banks should never set the interest rate more than 2 percentage points above the inflation rate.
Commercial bank officials welcomed the central's bank new policy, observing that the move would improve the services and business performance of banks in Laos.
“We have to abide by the policies of the central bank as it is the regulator of the banking sector,” ACLEDA Bank Lao Ltd Managing Director Mr Narin Phon told Vientiane Times yesterday, adding that the BOL had imposed a reference interest rate on deposit accounts of 6.13 percent over a one-year period and 8.63 percent over two years.
In the past, the central bank did not set a reference interest rate and commercial banks instituted their own rates. Some banks offer interest rates as high as 10 percent a year to attract more depositors, he said.
Mr Narin said the central bank's new policy would force commercial banks to improve their services as they could no longer use high interest rates to attract customers.
“Commercial banks should improve their services. This will reflect the quality of their management,” he said. “If you do not provide the best service, you won't be able to attract customers.”
Other bank officials said BOL's new policy was aimed at reducing the interest rate on loans, adding that if banks have easier access to capital they will be able to provide customers with lower lending rates.
The central bank believes that if business operators can get access to cheaper investment funding, they will be able to expand their businesses, which in turn will create more jobs.
In addition, the new regulation will lower the risk for people wanting to deposit money in banks as a form of investment.
Bank officials said the introduction of the new reference rate would not affect market mechanisms in the banking sector.
Over past few months, a number of people have complained about investment risks and urged the sectors concerned to investigate banking policy.
Some micro-finance institutions in Laos offer high deposit interest rates but have been unable to make investment funding and interest available to customers because businesses did not want to borrow money at such high interest rates.
