The government has announced its intention to increase deposits in commercial banks to 84 percent of Gross Domestic Product (GDP) by 2020, up from the 57 percent expected in 2016, in a bid to meet growing development needs.
Governor of the Bank of the Lao PDR, Mr. Somphao Phaysith, this week presented the next four-year currency plan to the ongoing ordinary session of the National Assembly (NA) following the government’s proposal to revise the four-year national socio-economic development plan (2017-2020). To achieve this target, it would be necessary to increase deposits to 23,067 billion Kip annually, he told the session, which is currently debating the proposal to revise the 2017-2020 socio-economic development plan, the budget plan and the currency plan.
Every effort will be exerted to increase the total credit in commercial banks to 74 percent of GDP by the end of 2020, an increase on the 50 percent expected by the end of 2016. To attain this target, an annual increase of 16,817 billion Kip must be secured.
The central bank governor pledged to endeavour to increase credit quality while limiting non-performing loans to not more than 3 percent of total credit.
“We will work to guarantee the security of the banking system. We will strive to resolve weaknesses in the financial situation and the administration and management of some state and private banks,” he told NA members.
The move is aimed at boosting economic growth, with the government asking the Assembly to lower the average annual growth rate from the previously approved 7.5 to 7.2 percent over the next four years. Next year, a target will be set to ensure that deposits in commercial banks reach 57 percent of GDP, an increase of 13,189 billion Kip compared to the year before, while bank credit is expected to reach 54 percent of GDP. The central bank will endeavour to ensure that the inflation rate is less than the economic growth rate. Under the proposed plan, the economic growth rate for next year would be set at 7 percent. The Kip exchange rate would be allowed to fluctuate between plus or minus 5 percent against major foreign currencies.
Mr. Somphao said the central bank would strive to ensure that foreign reserves could cover the cost of imports for more than five months, and would control money supply growth (M2) so that it did not exceed 24 percent compared to the previous year.
As of July 2016, commercial banks have recorded deposits totalling more than 59,616 billion Kip, representing 54.84 percent of GDP. This was an increase of 5,692 billion Kip compared to the same period last year.
Credit in the banking system climbed to more than 60,262 billion Kip, equivalent to 55.43 percent of GDP. The credit held by all 42 commercial banks accounted for 49.55 percent of GDP.
In addition, 158 non-bank financial institutions have released credit amounting to more than 884 billion Kip. Over the first 10 months of the 2015-16 fiscal year, Laos maintained an average inflation rate of 1.26 percent. The Kip was weaker by 0.30 percent against the US dollar compared to the previous fiscal year. By the end of July 2016, money supply growth increased by 9.63 percent compared to the same period last year. Foreign reserves were sufficient to pay for at least five months of imports.
Source: Vientiane Times