Increase in Registered Capital Requirement and Other Changes to the Banking Rules Under the New Commercial Bank Law

On 30 August 2023, the new Commercial Bank Law (Amendment) No. 39/NA dated 17 July 2023 (the “New Bank Law”) was promulgated by the Prime Minister of the Lao PDR, and on 13 October 2023, it was published in the Lao Official Gazette. The New Bank Law aims to set out the different categories of banking businesses; implement an increase in the required registered capital; change the procedures for banking business incorporation; and update some of the articles in the standard banking articles of association (“AOA”) regarding the rights and duties of the shareholders, the board of directors (“BOD”), and the organizational structure.

We set out below the key changes and new articles under the New Bank Law.

Banking categories

There are now two categories of commercial banks—(1) general: banks that handle general banking operations without a specific focus; and (2) special: banks that focus on specific banking activities or on specific products, sectors, areas, or target customers.

Registered capital

The registered capital requirement for domestic banking business activities has been changed from LAK500 billion to LAK1 trillion, and for foreign bank branches, from LAK300 billion to LAK600 billion. Banks registered and incorporated before the New Bank Law went into effect will have to increase their registered capital in accordance with the requirements above.

Procedure for banking business incorporation

Previously, preapproval from the Bank of the Lao PDR (“BOL”) had to be obtained before applying for an investment license from the Ministry of Planning and Investment and an enterprise registration certificate from the Ministry of Industry and Commerce. Under the New Bank Law, the BOL preapproval requirement has been removed—investors can now apply for and obtain their investment license and enterprise registration certificate before then obtaining a banking business operation license (“BBOL”) from the BOL.

When the investor applies for a BBOL, the BOL will issue an approval-in-principle, and the investor will have 180 days to complete the licensing prerequisites, such as fully contributing its registered capital, having its key organizational structure staff in place, having office premises, and having a functional operating system for its business. If the investor is not able to complete these in time, but has a valid reason, the BOL will consider allowing up to two extensions of a maximum of 90 days each time for the investor to complete its obligations.

Updates to the standard commercial bank AOA

The content of commercial bank AOAs must be updated to be consistent with the standard format of the BOL, which is updated periodically. The draft AOA must be approved at a shareholders’ meeting. For foreign bank branches, their AOA updates must be approved by the authorized person at the overseas headquarters before being submitted to the BOL for approval.

The following changes have been made to the content of the AOA under the New Bank Law:

• In addition to the shareholders’ meeting, BOD, the BOD’s committee, and the director’s committee, the bank’s organizational chart must include other departments or divisions.
• Various changes to articles in relation to: the rights and duties of the shareholders’ meeting; the BOD’s organizational chart; criteria for BOD members; the rights and duties of the BOD; the obligations of BOD members; the rights and duties of the following committees: the administration and management committee, the risk management committee, the audit committee, the director’s committee; the rights and duties of the directors; adding a department or division; and for foreign bank branches, their organizational structure.
• Various changes to articles in relation to the bank’s business: deposits; the provision of credit; the provision of payment services; foreign exchange; acting as a financial agent; the provision of investment and financial consultancy services; the provision of safe deposit boxes; service operating hour requirements; the requirement to use the Lao language in all official communications with the BOL; and expansion of the bank’s business.
• Various changes in relation to the internal control system; conducting transactions with the staff or shareholders’ relatives or the bank’s employees; the transfer of shares; and the disclosure of the bank’s information.

Note that we checked with the Commercial Bank Management Department of the BOL and were informed that the BOL has just updated the AOA format to reflect the New Bank Law changes and that all commercial banks must revise their AOA in accordance with the new format.

New articles added

• The BOL will reissue the BBOL to the investor if there is any change in the organizational chart, business operation scope, office address, or the BBOL becomes dirty, torn, or damaged.
• Overseas banks registered in the Lao PDR can change their status to a branch of a foreign bank but must be compliant with the requirements of foreign bank branches. Similarly, foreign bank branches can change their status to an overseas bank but they must be compliant with the requirements of overseas banks.
• Details on the Lao Banking Association are set out, including its definition, and its members’ rights and duties.
• The rights and duties of ministries, agencies, local government agencies, and the relevant authorities therein.
• The Lao Commercial Bank Committee, its rights and duties, and its members.

General amendments

• Maintenance of transaction information and documents: Foreign bank branches must keep them at their office in the Lao PDR. If they wish to keep such transaction documents and information at the head office, they must obtain prior approval from the BOL.
• Investment in other financial institutions: In addition to being allowed to invest in security, insurance, and leasing businesses, commercial banks are allowed to invest in credit guarantee businesses and other financial businesses.

Prohibitions and punitive measures

• Commercial bank prohibitions: In addition to the prohibitions stated in the old law, the New Bank Law has added further prohibitions, such as failure to comply with the BOL’s requirements despite warnings, failure to resolve issues in accordance with the BOL’s instructions, or proceeding with any transaction in its customers’ bank accounts that is not consistent with the regulations and without an authorization.
• The article in relation to measures taken against violators has been amended to state that any individual, legal entity, or organization that violates the law will be subject to measures such as education, warning, other disciplinary measures, fines, payment for any civil damages incurred as a result of the violator’s actions, or criminal sanctions.