Laos weighs deposit insurance overhaul and wider rescue powers

Depositors in Laos would receive greater protection under legislation put before the National Assembly by Bank of the Lao PDR (BOL) Governor Bounkham Vorachit. The proposal also changes how member institutions pay for insurance and gives the deposit protection fund a role in resolving financial distress.

The draft sets a protection floor equivalent to at least three times GDP per capita and requires coverage of at least 90 per cent of protected depositors. The existing ceiling, 100 million kip for each depositor at each member institution, covers about 94 per cent. BOL considers that ceiling relatively low by regional and international standards.

Insurance charges would vary with an institution’s risk profile, subject to a 1 per cent ceiling. Currently, every member pays the same annual rate: 0.1 per cent of average protected deposits. BOL said differentiated premiums would encourage institutions to improve management and risk controls.

A proposed “Paybox Plus” model would enable the Deposit Protection Office to lend to members in distress and help with mergers, rather than only reimburse depositors following failures. Such assistance would remain subject to BOL’s mandate and the applicable procedures.

The office would have to start paying protected deposits within 14 days after receiving BOL notification. Unclaimed money would enter the protection fund after 10 years, measured from notification to depositors to submit claims.

Membership would be compulsory for commercial banks and microfinance institutions accepting deposits. The office now counts 35 commercial banks and six deposit-taking microfinance institutions among its 41 members.

BOL said the framework under the 2017 deposit protection decree had exposed weaknesses in risk management, coordination and responses to institutional failures. It has sought additional comments from National Assembly members on the draft.