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.