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ACLEDA Bank Lao Ltd.

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Chairman's Report


Dr. In Channy, Chairman of the Board of Directors of ACLEDA Bank Lao Ltd.

Economic Environments

Construction activities related to large infrastructure projects, electricity exports, and notable growth in wholesale and retail trade contributed to economic growth in 2018. Rising core inflation coupled with higher food and fuel prices during most of 2018, and the depreciation of the Kip against the currencies of its major trading partners, contributed to higher inflation in 2018. Core inflation is estimated to have picked up from 0.9 to 2.3 percent between 2017 and 2018 due to higher prices for household furnishings, clothing and footwear, and restaurants and hotels.

The policy on interest rates remains unchanged in 2018 after a drop at the end of 2017, and thus credit growth continued to slow in 2018. Bank lending to the private sector and State-Owned Enterprises declined from 12% in October 2017 to 5% in October 2018 due to the moderation of economic activity and tightening fiscal spending. As a result, total credit to GDP is estimated to decline slightly to about 51.5% in 2018 from 52% of GDP in 2017.

Banking Sector

To support economic growth and maintain price stability, an expansionary monetary policy has been implemented. The Bank of Lao PDR (BOL) continues to maintain the reserve requirement ratio at 5% for Kip and 10% for foreign currencies setting a daily reference rate for commercial banks and exchange bureaus and intervening in the market as the lender of last resort when necessary. In this regard, the exchange rate for Lao Kip has depreciated in line with the trend of the US Dollar. Growth in deposits was recorded at 7.67% and covered 49.82% of GDP for the first six months of 2018, whereas credit growth was recorded at 6.68% and covered 52.45% of GDP.

Meanwhile major changes in monetary and exchange rate policies are unlikely. The authorities will continue to manage the exchange rate within the +/- 5% band; using the full band should provide the authorities with greater flexibility and lower pressures to intervene in the market to stabilize the Kip. It appears that the recent reduction in the policy rate and application of interest rate caps has had a limited positive impact on stimulating credit growth and lending to small and medium size enterprises (SMEs). Given recent trends in lending and a weakening loan-portfolio, credit growth could further ease. Inflation is expected to pick up; however, further fiscal consolidation, moderate credit growth and gradual recovery in commodity prices are likely to keep inflationary pressures moderate and within the Government's target of less than 5%.

Foreign Direct Investment

Key industries that have driven the increase in export earnings included electricity, and minerals due to relatively higher metal prices despite flat output. These helped compensate for the decline in agricultural exports due to the impact of floods, and lower agriculture commodity prices such as rubber and coffee. Import growth slowed due to a moderation in the import of consumption goods despite higher oil imports. As a result, the current account deficit is estimated to have declined to 11% in 2018 from 12.1% in 2017, with an improvement in the trade balance. Reserves were recorded at US$812 m in October and are estimated to remain at this level at year end. At this level, the reserve buffer is expected to remain relatively low covering 1.1 months total imports in 2018 compared to 1.5 months in 2017.

The current account deficit is projected to return to a declining trend after 2018, as import growth retreats. Gradual recovery of agriculture commodity and metal prices will support export earnings. The current account will continue to be financed by FDI and external borrowing, the latter increasingly on less concessional terms.

The value of imports and exports of the Lao PDR in December 2018 was approximately US$875 million excluding the import and export of electricity. Within that figure, imports were valued at approximately US$479 million and exports were approximately US$ 396 million.

Economic Outlook 2019

Growth in 2019–2020 is expected to remain robust on the back of large hydropower projects expected to begin commercial operations during 2019-2020 and continued infrastructure investment. Further, the medium-term fiscal framework envisages a fiscal consolidation path that aims to stabilize and eventually put public debt on a more sustainable path. The budget deficit is expected to decline over the medium-term from 4.7% in 2018 to 4.3% in 2019 and to below 4% in 2020 following revenue improvement and expenditure rationalization. The reduction in the fiscal deficit coupled with the positive impact of a more measured public borrowing strategy, in the wake of the recently passed Public Debt Management Law, is expected to reduce the public debt/GDP ratio over 2019-2020.

Significant Decisions of the Board of Directors and Achievements of ACLEDA Bank Lao Ltd. in 2018

Governance

The Board met face-to-face four times in March, June, September and December during the course of 2018 and in addition the Board passed resolutions by e-mail. Our main activities in 2018 were as follows:

  • Reviewed the Bank's quarterly Financial Reports and received progress reports on all operational aspects of the Bank's operations including services and products.
  • Approved the Audited Financial Statements and Annual Report for the year 2017.
  • Reviewed and approved the Business Plan, Budget and Capital Expenditure Plan, and Funding Strategy 2019.
  • Reviewed and approved Amendments of TORs for Board Committees.
  • Reviewed Reports of Board Committee Chairmen and Chairwoman on their Committee activities.
  • Reviewed and approved Amendments to the Risk Management Policy.
  • Reviewed and approved Amendments to the Credit Policy and Credit Operating Manuals.
  • Approved an extension of the term of Finance Consultant & CFO for another six months and the appointment of the new Finance Consultant & CFO of ACLEDA Bank Lao Ltd as a replacement.
  • Approved and recommended to Shareholders the appointment of KPMG Lao Co., Ltd. as the External Auditor for the years 2018 - 2020.
  • Approved opening LAK, USD, and THB accounts with KASIKORN Thai Bank limited, and a USD account with THANACHART Bank Public Company Limited.
  • Approved setting the inflation rate for ACLEDA Bank Lao Ltd.'s employees for 2018.

Achievements of ACLEDA Bank Lao Ltd. in 2018

Since the opening of ACLEDA Bank Lao Ltd., our mission has been to build a commercial bank with an extensive branch network throughout the Lao PDR, providing access to retail banking services with a special focus on the lower segments of the market. We will at all times observe the highest principles of ethical behavior, respect for society, the law and the environment.

At the end of December 31, 2018, ACLEDA Bank Lao Ltd. had 1,023 staff working in 39 offices nationwide. It had total assets of USD 143.312.908, gross loans outstanding of USD 115.149.399 and a balance of deposits of USD 83.190.346.

From a performance perspective, we are pleased to report that ACLEDA Bank Lao Ltd. had its fourth consecutive year of increase in terms of income. Over the year, ACLEDA Bank Lao Ltd. Focused on risk mitigation and improving the Bank's loan assets quality. Loan increases stemmed mainly from an increase in loans to Small 3 and Medium enterprises.

In closing, we would like to express our sincerest gratitude to the Government of Lao PDR, the Bank of Lao PDR, regulators, all relevant authorities and our customers for their support and our gratitude to management and the Bank's staff for their efforts. Our Board and staff remain committed to building ACLEDA Bank Lao Ltd. into the best bank in Lao PDR.

Dr. In Channy
Chairman of the Board of Directors
March 13, 2019

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