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Decree of the
Council of Ministers pertaining to the
Management and Operations
of Commercial Banks and Financial Institutions
- based on the law concerning the creation of the Bank of the Lao PDR number 04/90/SPA dated July 10 1990 and promulgated by Presidential decree number 39/PL dated July 27 1990;
- based on the proposal of the Governor of the Bank of the Lao PDR;
the President of the Council of Ministers decides:
Part I
Definitions of Banking Business
Article 1: Commercial Banks are enterprises that conduct the banking business as their normal professional activity:
- accept different types of deposits from the general public;
- make different types of loans;
- offer a variety of payment services to their customers;
- offer other services to their customers: foreign exchange; placement of currencies to gain interest or the clearing of customers payments at the bank or other financial institutions domestically or abroad; buying and selling and the safe custody of securities, bonds, documents and other valuables.
Article 2: There are three types of commercial banks: development banks, commercial banks and specialised commercial banks which can be state owned, joint ventures, foreign owned and joint ventures with foreigners etc....
Specialised commercial banks can be agricultural banks, industrial banks and banks which operate in specific sectors.
No person or legal entity Other than a bank may conduct banking business and name itself or advertise itself as a bank in Lao or any foreign language in such a way as to make people believe that it is a bank.
The Bank of the Lao PDR has the right to investigate any person or legal entity that it suspects is conducting the banking business illegally and it has the right to prosecute such person or entity in the courts.
Article 3: Financial institutions are enterprises which conduct similar business to banks:
- mobilise funds from the public by way of issue of shares or
- make loans in different forms,
- carry out foreign exchange Operations;
- provide leasing or purchase finance;
- act as a middle man to seek funds for large investment;
- Placement of funds with banks and other financial institutions;
Financial institutions are not authorised to mobilise deposits from the general public in the way of banks nor may they clear funds for their customers in the manner of banks.
Financial institutions in the Lao PDR comprise:
- The State Treasury and Pension Funds;
- Insurance Companies;
- Finance Companies;
- Credit Cooperatives and others.
The State Treasury, Pension Funds and Insurance Companies operate under the laws of the Lao PDR and the specific regulations concerning their operations.
The other financial institutions must operate under the provisions of this decree and must abide by the Bank of the Lao PDR Act.
Article 4: Licensed representative offices of foreign commercial banks or financial institutions in the Lao PDR may provide only certain services for the commercial banks and financial institutions that are their customers, They are not authorised to conduct banking business or carry out activities similar to banking business in the Lao PDR.
Article 5: Commercial banks and different types of financial institutions that are established in the Lao PDR are legal entities having equal rights before the law and enjoy the protection of the law and operate according to their respective roles to compete for the business of their customers and must respect the laws, orders and regulations of the Lao PDR and other policies set out by the Government.
Part II
Establishment of Banks and Financial Institutions
Article 6: Individuals or legal entities who wish to establish commercial banks or financial institutions in the Lao PDR must make written application and must file complete and accurate documents as laid down by the Bank of the Lao PDR.
An applicant who wishes to establish a commercial bank shall satisfy the following basic conditions:
- shall have adequate capital as determined periodically by the Bank of the Lao PDR;
- shall have the technical competence and financially qualified staff as determined by the Bank of the Lao PDR;
- shall have credibility in the eyes of the public;
- and shall have a qualified management team with ability and experience in the banking business.
Only the Bank of the Lao PDR is authorised to grant or refuse a license to an applicant for establishing a bank or financial institution.
Article 7: The establishment of a joint venture bank with a foreign partner, the branches of foreign commercial banks or financial institutions in the Lao PDR shall be in accordance with the Foreign Investment Code of the Lao PDR and shall have the approval of the Governor of the Bank of the Lao PDR and have the permission of the Government of the Lao PDR.
The Bank of the Lao PDR has the right to ask the foreign bank that wishes to establish a branch or have a joint venture bank in the Lao PDR shall be bank with a sound financial position and lawful operations in the banking business in its own country.
Domestic commercial banks that wish to establish their branches in the Lao PDR shall obtain the permission of the Bank of the Lao PDR and if they wish to open branches overseas they shall have the approval of the Governor of the Bank of the Lao PDR and the permission of the Government of the Lao PDR. Branches of foreign commercial banks or financial institutions in the Lao PDR are not authorised to open any other branches in the Lao PDR.
Article 8: After being granted a license officially, the applicant shall bring the capital for registration of the establishment of a commercial bank, financial institution or branch of a foreign bank or financial institution within the Lao PDR. The capital shall be transferred to a deposit account in its name at the Bank of the Lao PDR within a period of 90 days.
Beyond the above mentioned period, the Bank of the Lao PDR is authorised to cancel the license or to allow a further defined time in which to bring in the capital for registration.
Part III
Capital of Commercial Banks and Financial Institutions
Article 9: The capital of commercial banks and financial institutions comprises:
9.1 Paid up capital: It is the capital provided at the establishment of the commercial bank or financial institution. The Bank of the Lao PDR shall determine the initial ratio that must be kept in the reserve fund or determine the ratio of the aforesaid capital so that the concerned commercial bank and financial institution can use it to operate their business.
The co-investors in the establishment of a commercial bank or financial institution are called "partners". Partners have the right to sell or transfer their shares to others. Partners have the right to withdraw their own shares in the case of liquidation of the commercial bank or financial institution and after clearing all financial obligations. A bank or financial institution, being a joint venture with a foreigner, shall carry out the terms of the agreement made at the time of its establishment.
9.2 A capital increase: The commercial bank or financial institution can increase its capital by extending its shares to the public. The co-investors in the extension of the shares are called "shareholders". Shareholders may withdraw their holdings in accordance with the terms and conditions established at the time of the extended issue, in conformity with the decision of the Board of Directors of the concerned commercial bank or financial institution.
9.3 If owners of the shares (partners and shareholders) should die, become insane, or terminate their legal rights, the beneficiary shall take over the concerned shares with their respective rights and obligations.
Part IV
: Organisation of Banks and Financial Institutions
Article 10: The Board of Directors:
10.1 A commercial bank and a financial institution established in the Lao PDR, except a branch of a foreign bank and a representative office of a foreign bank or foreign financial institution, shall have a Board of Directors.
The Board of Directors is the organ which has the full power to decide all matters of a commercial bank or a financial institution except for some rights reserved for the general meeting of the shareholders.
10.2 The Board of Directors determines regulations and monitors the business activities of the management team of a commercial bank or a financial institution.
10.3 The members of the Board of Directors consist of at least five persons or at most fifteen persons whom the general meeting of the shareholders shall elect or remove from office. The Governor of the Bank of the Lao PDR shall appoint or remove from office the Chairman, the Vice Chairman and the members of the Board of Directors and the management team of a state owned commercial bank. The members of the concerned Board of Directors shall be selected from different concerned sectors, from individuals who are businessmen or qualified people and professionals with experience in financial matters and banking and who have never been indicted for offenses affecting their credibility in the business and political arena in general.
In the case of the death of a member of the Board of Directors or his resignation in between two general meetings of the shareholders, the Board of Directors can appoint someone to the Board to replace him temporarily.
10.4 At least one third of the members of the Board of Directors shall be Lao citizens who are normally resident in the Lao PDR.
10.5 Members at a meeting of the Board of Directors of a non state-owned commercial bank shall elect its Chairman and its Vice Chairman from amongst the Board members or remove them from office. The Chairman and the Vice Chairman of the Board of Directors have the same term in office as their membership of the Board and can be reelected.
10.6 Normal meetings of the Board of Directors shall be held every quarter (every three months of the year) and extraordinary meetings can be held at any time when necessary at the request of the Chairman of the Board or when requested by at least two thirds of the Board members. A quorum for valid resolutions at meetings of the Board shall be at least half the members thereof.
10.7 Decisions of the Board shall be taken by a majority of the m embers present and voting. In the case of a tie, the Chairman shall have a casting vote. Minutes shall be kept of all decisions of the Board of Directors and circulated to the members after the meeting for signing.
10.8 The proceedings of the Board of Directors shall be in accordance with the regulations of the commercial bank or financial institution which do not conflict with this decree. The general meeting of the shareholders shall approve such regulations. Regulations approved by resolutions of the general meeting of the shareholders shall be sent to the Governor of the Bank of the Lao PDR for promulgation and appropriate registration to be valid.
10.9 The Chairman, Vice Chairman and all members of the Board of Directors who are given the power by the general meeting of the shareholders to manage a commercial bank or a financial institution have the full right to decide upon matters of that commercial bank or financial institution and shall be responsible for the interests of the shareholders thereof and the Chairman, Vice Chairman and other empowered members shall not take any opportunity to further their own interests.
The Chairman, Vice Chairman and other members of the Board of Directors shall answer the questions of the shareholders at the shareholders meeting. In the case of loss the Bank of the Lao PDR has the right to call the Chairman, Vice Chairman and members of the board of Directors with the management team of a commercial bank and financial institution for investigation.
10.10 The appointment or election of members of the Board of Directors of a commercial bank or financial institution with a foreign partner shall be in conformity with the laws and regulations of the Lao PDR and shall be in accordance with the agreement of the establishment signed with the foreign partner.
Article 11: Management Team.
11.1 The Chairman and Vice Chairman of the Board of Directors are the Managing Director and Deputy Managing Director of a state owned commercial bank and state-owned financial institution. The appointment and removal from office of the Managing Director and his team shall be conducted in accordance with the provisions of Article 10 section 10.3 of this decree.
11.2 The Managing Director of a joint venture bank, a bank with a foreign partner etc.. shall be appointed and removed from office by the Board of Directors. The Board of Directors shall determine the salaries, rights and functions of the concerned Managing Director.
11.3 The Managing Director has the authority and task to manage the given business delegated by the Board of Directors to whom he shall be responsible. The Deputy Managing Director shall assist the Managing Director and carry out the work given to him by the Managing Director. There may be a small or large number of Deputy Managing Directors depending upon the tasks and on the decision of the Board of Directors.
11.4 The Managing Director is the representative of a commercial bank or financial institution to make contracts with third parties and has the right to present disputes to the Court, and pursue the dispute in the Court to protect the interest of the commercial bank or financial institution within the authority delegated to him by the Board of Directors.
11.5 The Managing Director shall employ or dismiss the officers, promote, reward and admonish those officers within his delegated authority and in conformity with the Labor Law of the Lao PDR.
11.6 The Managing Director shall determine the appropriate units within the organisational structure of a commercial bank or financial institution and the respective placing of employees therein, subject to the approval of the Board of Directors.
Article 12: General Meetings of Shareholders.
There are two types of shareholders general meetings such as the ordinary general meeting and the extraordinary general meeting.
12.1 An extraordinary general meeting shall be held to vote on:
- the approval of amendment of the statutes of a commercial bank or financial institution.
- the election of members of the Board of Directors and their removal from office.
- the liquidation or transfer of activities to another party.
- consideration of important and urgent problems which would affect the efficiency of a commercial bank or financial institution.
Resolutions of an extraordinary general meeting are valid in the presence of at least two thirds of the owners of the shares or their valid representatives.
12.2 An ordinary general meeting shall be held once a year to hear the annual report of the Board of Directors in the presence of at least one fourth of the owners of the shares or their valid representatives. In the absence of one fourth of the share owners another meeting shall be called. If less than one fourth of the share owners is present at the second meeting then the proceedings and decisions of the meeting shall nevertheless be valid.
12.3 Advance notice shall be given for each ordinary or extraordinary general meeting to the owners of the shares. The Chairman of the Board of Directors or a half of the shareholders have the right to call for a general meeting of shareholders. The chairman of a meeting shall be appointed by the participants at the shareholders' general meeting.
12.4 Resolutions of a shareholders' general meeting shall be adopt ed by a simple majority of the votes at the meeting. Votes shall be cast in line with the number of shares held.
Article 13: Restrictions imposed on and obligations required of 8 member of the Board of Director's, the Management Team and officers of a commercial bank or financial institution.
13.1 The Chairman, Vice Chairman and a member of a Board of Directors and the Management Team of a commercial bank or financial institution shall not borrow from his own commercial bank or financial institution or obtain a guarantee from his own commercial bank or financial institution so that he may borrow from another party or to misuse his position to issue his personal guarantee to enable other persons to borrow from his own commercial bank or financial institution.
13.2 Every contract between a commercial bank or financial institution and any member of the Board of Directors shall have the advance approval of the Board of Directors.
13.3 Any officer of a commercial bank or financial institution who wishes to accept any other second employment shall obtain the advance approval of the Chairman of the Board of Directors.
13.4 The appointment of a member of the Board of Directors, Management Team or any officer who is convicted of murder, fraud, embezzlement, corruption or who has been made bankrupt, or who has broken a regulation pertaining to monetary management, shall be terminated immediately.
Part V
Activities of a Commercial Bank or Financial Institution.
Article 14: Activities of a commercial bank.
14.1 Accepting deposits:
Lao or foreign citizens or legal entities may open accounts with a commercial bank established in the Lao PDR. Those who apply to open a deposit account shall complete documents as determined by the commercial bank.
An account holder may authorise another person to make deposits to the holder's account and to make withdrawals therefrom. However, that authority shall be in writing bearing the valid signature of the account holder and that of his delegate.
A commercial bank is authorised to mobilise deposits of different types such as a demand deposit, a savings deposit, a time deposit and other types of deposit.
A commercial bank shall guarantee the withdrawals of its customers in accordance with the agreement for that type of deposit and shall keep information on a customer's account confidential.
Disclosing information about a customer's account is considered a criminal offense and a customer has the right to present a case to the Court for compensation, except for the case mentioned in Article 16 paragraph 1 of the Bank of the Lao PDR Act.
A commercial bank may determine the rate of interest it pays on deposits within the guidelines set by the Bank of the Lao PDR periodically.
A commercial bank shall pay interest to its depositors in accordance with the agreement applying thereto.
14.2 Credit Operations:
A commercial bank may grant credit from its paid up capital, from its deposits, borrowed funds and others. In the case of an insufficiency of funds a commercial banks may request an additional loan from the Bank of the Lao PDR in the form of an advance, or sell commercial bills in accordance with the conditions and regulations of the Bank of the Lao PDR.
The types of credit given by a commercial bank are :
- temporary advance,
- overdraft,
- day today loans
- short term loan (one year or less)
- medium term loan (one to three years)
- long term loans (more than three years)
- the opening of a letter of credit (L/c) for export and import with foreign countries and etc..
Loans shall be evidenced by contracts between a commercial bank and its customer and the parties shall perform the obligations in full contained therein. The provisions of the contract shall include certain basic elements, such as:
(l) the amount of the loan,
(2) the purpose and the draw down period
of the loan, (3) the maturity,
(4) the repayment conditions,
(5) the interest rate,
(6) penalties,
(7) the security,
(8) events causing repayment to be accelerated.
A commercial bank may determine the interest rate on a loan within the guidelines set by the Bank of the Lao PDR.
A commercial bank may request a borrower to provide security for his loan in an amount which it deems suitable. That security shall be registered with the authorised organisation.
A commercial bank may issue a loan guarantee for its customer, disc ount his commercial bills and etc...
14.3 Other Services:
A commercial bank may charge commissions and fees for transferring money, clearing items, foreign exchange, issue of letters of guarantee etc...as it may periodically determine.
A commercial bank may buy and sell foreign exchange or establish foreign exchange bureau upon the conditions expressed in the Council of Ministers' decree governing the Management of Foreign Exchange and Precious Metals and under the control of the Bank of the Lao PDR.
Article 15: -With regard to the activities of a financial. institution, a finance company, a credit cooperative and etc.,the Bank of the Lao PDR shall establish separate regulations for the management of each type of those financial institutions.
Article 16: The activities of a credit cooperative.
16.1 A credit cooperative is an enterprise formed by a group of people who operate to mobilise funds by selling shares (credit shares) to the public.
16.2 A credit cooperative shall use its mobilised funds to make loans to customers in different forms or to deposit them with a commercial bank to earn interest. A credit cooperative may request a borrower for security to guarantee the amount of his loan in the same manner as a commercial bank.
16.3 A credit cooperative may establish a foreign exchange bureau provided it gets a license from the Bank of the Lao PDR.
16.4 A credit cooperative may not mobilise funds from the public in excess of twenty times its paid up capital and may not make loans in excess of its net worth plus the mobilised funds. A credit cooperative shall comply with Article 17 of this decree.
16.5 A credit cooperative shall pay interest for mobilised funds and charge interest on loans in accordance with the guidelines set out by the Bank of the Lao PDR.
Part VI
Supervision of A Commercial Bank and A Financial Institution
Article 17: All activities of a commercial bank and a financial institution (except the State Treasury, Pension Fund, Insurance Companies) shall be under the supervision and control of the Bank on the Lao PDR.
A commercial banks and a financial institutions shall maintain the different ratios set out by the Bank of the Lao PDR.
- total reserves ratio;
- liquidity ratio;
- required reserve ratio;
- loan/deposit ratio;
- agricultural lending ratio;
- as set out in the foreign exchange management decree; and etc....
A commercial bank and a financial institution shall send a statement of its financial position to the Bank of the Lao PDR each month or at the request of the Bank of the Lao PDR and that statement shall be in the form and manner required by the Bank of the Lao PDR.
The Bank of the Lao PDR may carry out on-site examination whenever it deems fit.
In the event of a change, in the amount of the registered capital, of the Chairman of the Board of Directors or the Managing Director, a commercial bank or financial institution shall report such change immediately to the Bank of the Lao PDR.
A commercial bank and a financial institution, or a person who is in breach of any law, decrees, regulations of the Lao PDR, and any of the provisions mentioned above shall be warned and/or fined and/or have the business license withdrawn or in extreme cases taken to Court and prosecuted according to the law.
Article 18: Auditors of a commercial bank and a financial institution.
- A commercial bank established in the Lao PDR shall have an auditor. The auditor shall be appointed by the general meeting of the shareholders upon the recommendation of the Board of Directors and shall be approved by the Bank of the Lao PDR.
The function of the auditor is to check, review and verify the accuracy of the financial accounts and make recommendations thereon for each financial year. The auditor has the right to examine every document that he needs to fulfill his duties. At the end of each financial year the auditor shall make a report of his assessment of the accounts for that year to the general meeting of the shareholders for approval.
- The Board of Directors of a commercial bank or financial institution shall establish an audit committee to verify the accounts, the verification shall be performed quarterly, yearly or if it deems necessary it may do so on any occasion.
The audit committee shall be selected from a list of accounting experts whose qualifications have been approved by the Bank of the Lao PDR.
The audit committee has the right to request, verify all documents it deems necessary but shall maintain the confidentiality of any documents and data that the committee receives and shall report to the Board of Directors and to the Bank of the Lao PDR. This report shall be signed by two members of the Board of Directors acknowledging the findings thereof.
- Bank of the Lao PDR may ask a commercial bank and a financial institution to make additional auditing by the external auditors at the expense of the commercial bank and financial institution.
Part VII
Responsibilities towards Customers and Employees
Article 19: A commercial bank and a financial institution shall be responsible for the business operations and shall be responsible for the repayment of deposits to depositors and for the full repayment of credit shares to their customers. The customers who suffer any losses may seek compensation by legal process.
Article 20: A commercial bank and a financial institution shall pay salaries according to its revenues and according to the regulations approved by the Board of Directors. The regulations regarding the salaries paid by a commercial bank and a financial institution shall be in accordance with wage laws of the Lao PDR.
Part VIII
The Distribution of Profits and Losses
Article 21: The net profit for the year is the profit after the payment of taxes, deduction of provisions for bad debts. Net profit will be allocated to the establishment of different kinds of reserves in accordance with the regulations of the Bank of the Lao PDR, reserves for future expansion, staff bonus funds, welfare funds; the remaining amount may be distributed among the shareholders in accordance with the decision of the Board of Directors.
Article 22: In the event of losses, a commercial bank and a financial institution shall use its reserve funds to cover its losses.
The Bank of the Lao PDR may intervene in the activities of a commercial bank or a financial institution in the cases where it deems necessary.
Part IX
Liquidation of a Commercial Bank and a Financial Institution
Article 23: Liquidation of a institution shall take place in the following circumstances:
- on the decision of the shareholders general meeting;
- in the case of losses that prevent the future operations;
- by order of the Bank of the Lao PDR or the Court to cease operations because of malfeasance;
- upon the sale or transfer to another party.
Whatever the circumstances for the liquidation of a commercial bank and a financial institution, the Bank of the Lao PDR shall make it known to the public and set up a special examination committee to investigate and evaluate the assets and liabilities of the commercial bank and financial institution to repay the creditors. The remaining assets shall be distributed to- the partners and shareholders in accordance with the decision of the Board of Directors. Where a commercial bank and a financial institution has been registered as a partnership having unlimited liability, the partners are responsible to the extent of their individual assets for the payment of the creditors.
Part X
Final Part
Article 24: For the implementation of this decree the Bank of the Lao PDR has the right to give a license to establish a commercial bank or a financial institution including the issuance of regulations for the stable and efficient conduct by a commercial bank and a financial institution of its business, the Bank of the Lao PDR has the right to supervise and regulate the activities of a licensed commercial bank and a financial institution.
Article 25: This decree is valid from the date of signature and will replace any previously issued decrees, regulations, that may conflict with this decree. The Governor of the Bank of the Lao PDR, Ministers, Heads of Provinces and Municipalities have the responsibility for the implementation of this decree according to their respective roles.
The Bank of the Lao PDR shall make a detailed guideline for the implementation of this decree. If any problems are encountered in the implementation of this decree, the Governor of the Bank of the Lao PDR has the responsibility to study and propose amendments to the Council of Ministers.
Vientiane
date............................
Prime Minister