Lao People's Democratic Republic: Enhancing Financial Sector Supervision

Sovereign Project | 42224-012

Summary

Component 1: Strengthen capacity development for effective supervision of commercial banks under the supervision department of the Bank of lao (BOL). This component will provide (i) on-the-job training for bank supervisors for on-site and off-site inspections and assessment report writing, and up to four staff secondments to neighboring central banks (Malaysia, the Philippines, and Thailand); (ii) enhanced procedures for bank on-site and off-site inspections and reporting; (iii) internal procedures drafted for developing a prompt corrective mechanism for stressed banks; and (iv) staff training on assessment of bank vulnerabilities and stress tests.

Latest Project Documents


Project Data Sheets (PDS) contain summary information on the project or program. Because the PDS is a work in progress, some information may not be included in its initial version but will be added as it becomes available. Information about proposed projects is tentative and indicative.

The Public Communications Policy (PCP) recognizes that transparency and accountability are essential to development effectiveness. It establishes the disclosure requirements for documents and information ADB produces or requires to be produced.

The Accountability Mechanism provides a forum where people adversely affected by ADB-assisted projects can voice and seek solutions to their problems and report alleged noncompliance of ADB's operational policies and procedures.

In preparing any country program or strategy, financing any project, or by making any designation of, or reference to, a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

Project Name Enhancing Financial Sector Supervision
Project Number 42224-012
Country Lao People's Democratic Republic
Project Status Closed
Project Type / Modality of Assistance Technical Assistance
Source of Funding / Amount
TA 7500-LAO: Enhancing Financial Sector Supervision
Technical Assistance Special Fund US$ 500,000.00
Regional Trade and Financial Security Initiative C US$ 250,000.00
Strategic Agendas Inclusive economic growth
Drivers of Change Governance and capacity development
Sector / Subsector Finance - Banking systems and nonbank financial institutions - Inclusive finance
Gender Equity and Mainstreaming No gender elements
Description

Component 1: Strengthen capacity development for effective supervision of commercial banks under the supervision department of the Bank of lao (BOL). This component will provide (i) on-the-job training for bank supervisors for on-site and off-site inspections and assessment report writing, and up to four staff secondments to neighboring central banks (Malaysia, the Philippines, and Thailand); (ii) enhanced procedures for bank on-site and off-site inspections and reporting; (iii) internal procedures drafted for developing a prompt corrective mechanism for stressed banks; and (iv) staff training on assessment of bank vulnerabilities and stress tests.

Component 2: Strengthening institutional capacity of the microfinance supervision unit at the BOL. This component will (i) develop a standardized industry monitoring and reporting system, including off-site and on-site inspection manuals and procedures, and corrective mechanisms for MFIs, financial cooperatives, and village banks; (ii) upgrade the microfinance regulations to a decree with possible inclusion of regulations for the establishment and operation of apex institutions, and facilitate training on compliance; (iii) provide capacity training for the BOL's microfinance supervisors, including on-the-job training and exposure/study visits to different supervisory models in neighboring countries (Cambodia, the Philippines, and Viet Nam); (iv) support a study on upgrading the MFI supervisory unit to a department, as necessary; and (v) support a feasibility study for the establishment of a nationwide apex institution to provide financial and technical support to MFIs.

Component 3: Enhanced capacity of staff at the Anti-Money Laundering Intelligence Unit. This component will support further development and capacity strengthening of the AML regime, particularly capacity development at the AMLIU in the following areas: (i) preparation of guidelines to implement the AML decree; (ii) on-the-job training for staff of the AMLIU in areas including intelligence analysis, monitoring and inspections, and report writing, based on best international practices; (iii) communications and media training; (iv) training for relevant staff in government agencies, as well as financial institutions with responsibilities for implementing the AML regime (this will include training on reporting requirements for staff of financial institutions); (v) design and development of an appropriate information technology system for receiving, storing, and analyzing transaction reports and procurement of equipment; (vi) preparation for the Asia/Pacific Group on Money Laundering mutual evaluation in 2010; and (vii) input to upgrading the decree to a law over the longer term.

Project Rationale and Linkage to Country/Regional Strategy

ADB's country strategy and program (CSP) 2007/2011 for the Lao PDR is aligned with the Government?s NSEDP6, and focuses on (i) promoting pro-poor sustainable growth by nurturing employment opportunities through private sector development (small and medium-sized enterprise development, transition to commercial agriculture, and regional integration as the main engine of outward-oriented growth); (ii) fostering inclusive social development by accelerating progress in non-income MDGs (education, primary health care, water supply); and (iii) addressing priority governance issues by building capacity for good governance and Nam The un 2 Hydropower project revenue management. The core of the strategy is to move to coordinated capacity development and program and/or sector-based approaches in priority sectors which is supported by the Vientiane Declaration on Aid Effectiveness and its associated country action plan. The CSP is amplified by the Greater Mekong Subregion (GMS) strategy and program initiatives aimed at fostering connectivity, promoting large-scale foreign direct investment, and creating regional public goods.

Through ongoing operations, policy dialogue, and institutional development assistance, ADB will assist the Lao PDR to promote good financial sector governance. In cooperation with the World Bank and International Monetary Fund, ADB will continue to support the reform of the banking sector through ongoing operations aimed at i) state owned commercial bank restructuring, ii) capacity development in prudential oversight and judiciary reform, iii) reduction of direct barriers to foreign banks, and iv) expansion of banking outreach by developing a sustainable and market-oriented rural and microfinance sector.

The TA is also aligned with the objectives of the Government's Financial Sector Strategy 2009-2020. This strategy prioritizes capacity development in banking supervision and includes six components: (i) banking sector development, covering prudential supervision, intermediation, and branching; (ii) development of nonbank financial institutes; (iii) microfinance institutions (MFIs); (iv) money markets; (v) capital markets; and (vi) finance sector infrastructure. The strategy identifies short-term priorities including banking sector development in prudential supervision and branching and expansion of rural finance coverage; and longer-term priorities such as the establishment of interbank lending.

Impact Improved financial soundness of the banking and microfinance sectors
Project Outcome
Description of Outcome Improved BOL supervision of banks and MFIs, and monitoring of cash transactions
Progress Toward Outcome Bank are subject to onsite inspections and periodic off-site evaluations. However, the quality of these supervisory interventions has room to improve and the off-site examinations are not performed in a coordinated manner. IFRS has not yet been adopted due to a lack of technical capacity. Improvements to the micro-finance examination process are ongoing but capacity to deter money laundering and terrorist financing is under-developed.
Implementation Progress
Description of Project Outputs

1. Bank supervision capacity strengthened

2. Microfinance supervision capacity strengthened

3. AMLIU capacity enhanced

Status of Implementation Progress (Outputs, Activities, and Issues)

Under Component 1,

Under component 2, 2 study visits were organized for the Bank of Lao regulators to the Philippines and Indonesia for their exposure to the microfinance supervision/regulation in these countries. Also, a microfinance sector assessment has been preapred under this component, which will be presented in a stakeholders' workshop on 25 March 2011 in Vientiane.

Geographical Location
Safeguard Categories
Environment
Involuntary Resettlement C
Indigenous Peoples C
Summary of Environmental and Social Aspects
Environmental Aspects
Involuntary Resettlement
Indigenous Peoples
Stakeholder Communication, Participation, and Consultation
During Project Design
During Project Implementation
Business Opportunities
Consulting Services A team of 5 international consultants (totaling 15 person-months), 2 national consultants (totaling 15 person-months), one national project administrator (totaling 18 person-months), and one research assistant (10 person-months) will be engaged individually to carry out the activities under the TA project.
Responsible ADB Officer Stephen Schuster
Responsible ADB Department Southeast Asia Department
Responsible ADB Division Public Management, Financial Sector and Trade Division, SERD
Executing Agencies
Bank of the Lao People's Democratic Republic Mr. Sayaphet PhanthabounYonnet Road, P.O. Box 19
Vientiane
Lao People's Democratic Republic
Timetable
Concept Clearance 19 Mar 2009
Fact Finding 14 May 2009 to 14 May 2009
MRM -
Approval 05 Feb 2010
Last Review Mission -
PDS Creation Date 26 Oct 2009
Last PDS Update 16 Dec 2011

TA 7500-LAO

Milestones
Approval Signing Date Effectivity Date Closing
Original Revised Actual
05 Feb 2010 31 Mar 2010 31 Mar 2010 30 Jun 2011 30 Apr 2012 -
Financing Plan/TA Utilization Cumulative Disbursements
ADB Cofinancing Counterpart Total Date Amount
Gov Beneficiaries Project Sponsor Others
500,000.00 250,000.00 150,000.00 0.00 0.00 0.00 900,000.00 05 Feb 2010 487,799.09

Safeguard Documents

See also: Safeguards

No documents found.

Evaluation Documents

See also: Independent Evaluation

No documents found.


The Public Communications Policy (PCP) establishes the disclosure requirements for documents and information ADB produces or requires to be produced in its operations to facilitate stakeholder participation in ADB's decision-making. For more information, refer to the Safeguard Policy Statement, Operations Manual F1, and Operations Manual L3.

Requests for information may also be directed to the InfoUnit.