BOL vows to curb bad loans
BOL vows to curb bad loans
The Bank of the Lao PDR has vowed to lower the rate of Non Performing Loans (NPLs) after learning that an increasing number of borrowers have been unable to repay the loans issued by commercial banks.
The latest report from the central bank, which oversees monetary policy in Laos, indicates that it plans to keep NPLs at 3 percent in the coming 2015-16 fiscal year. The measure is viewed as essential tool in maintaining stability in the country's banking and financial systems.
The number of NPLs rose slightly over the past year according to the report, which indicated a 3.11 percent increase in August, up from 2.16 percent in September last year.
The data is based on unofficial estimates.
The rising rate of NPLs is an indicator that banks are failing to receive loan repayments from companies by the agreed date. The report did not contain any details on the main causes of loan defaults.
In the current 2014-15 fiscal year, commercial banks in Laos released loans amounting to 55.111 trillion kip (US$6.8 billion), accounting for 54 percent of GDP. The credit value this fiscal year grew by about 12 percent compared to the previous year.
In the 2015-16 fiscal year, the Bank of the Lao PDR expects the credit value to grow by 19 percent. Loans will be offered to sound production activities and the manufacturing sector, with the aim of building a solid foundation for industrialisation. Small and medium enterprises will also get bank loans next fiscal year.
Loans have been injected into all economic sectors, including small and medium enterprises, according to the report, which was delivered by the central bank's governor at a meeting last week between cabinet members and provincial governors.
Bankers say it is impossible for banks to eliminate NPLs entirely because any business operation carries an element of risk. However, banks should keep the number of NPLs at a healthy level. This can be achieved through the careful study of business plans submitted by borrowers before a decision is made to issue a loan.
Banks should give loans to businesses that have strong market potential in order to lower the risk of a non-performing loan, they said.
