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Enhancing Financial Sector Supervision :  Lao People's Dem Rep :Go to Project Summary

Enhancing Financial Sector Supervision :  Lao People's Dem Rep

Timetable  |  Financing Plan and TA Utilization


TA Name Enhancing Financial Sector Supervision
Country Lao People's Dem Rep
TA Number 7500
Project Number 42224- 01
Source of Funding/Amount[Closed]
Regional Trade and Financial Security Initiative C US$250,000
Technical Assistance Special Fund US$500,000
Thematic Classification Capacity Development
Economic growth
Governance
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.
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: 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: accelerating progress in nonincome MDGs (education, primary health care, water supply); and (iii) addressing priority governance issues: building capacity for good governance and Nam The un 2 Hydropower project revenue management. The core of the strategy¿a move to coordinated capacity development and program and/or sector-based approaches in priority sectors¿is supported by the Vientiane Declaration on Aid Effectiveness3 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 Loa PDR to promote good financial sector governance. In cooperation with the World Bank and Internatiojnal 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.
Outcome Progress Toward Outcome
The outcome of the TA will be improved BOL supervision of the banks and MFIs, and monitoring of cash transactions. Bank are subject to onsite inspections and periodic off-site evaluations. However, the quality of these supervisory interventions has room to improve and the on and off-site examinations are not performed in a coordinated manner. IFRS have not yet been adopted due to a lack of technical capacity. Improvements to the micro-finance examination process are ongoing and capacity development under Component 3, anti-money laundering is expected to commence with the next quarter.
Outputs and Timeframe Status of Implementation Progress (Outputs, Activities and Issues)
The key TA activities are divided into 3 components:

Component 1: Strengthen capacity development for effective supervision of commercial banks under the supervision department of the BOL.

Component 2: Strengthening institutional capacity of the microfinance supervision unit at the BOL.

Component 3: Enhanced capacity of staff at the Anti-Money Laundering Intelligence Unit.
Under Component 1, a comprehensive assessment of the Lao banking sector and regulatory framework was prepared which identified structural impediments that must be addressed to support the longer-term development of the banking sector. In addition, an International banking Expert has completed an assessment of staff skills and the prudential standards and has provided recommendations to the Bank of Lao with regard to training needs and procedural enhancements. Seminars have been delivered to strengthen the supervision group's credit analysis skills and examination methodologies. However, transitioning from a compliance to a risk-based examination methodology is difficult and the process is generally lengthy.

Under Component 2, 2 study visits were organized to send Bank of Lao staff to the Philippines and Indonesia to illustrate how microfinance supervision/regulation is practiced in these countries. In addition, a microfinance sector assessment has been preapred under this component, which will be presented in a stakeholders' workshop on 25 March 2011 in Vientiane.

Under Component 3, a number of International Experts have provided advice and support to the Bank of Lao, and the Anti-Money Laundering Financial Intelligence Unit in advance of the recently ompleted Asia Pacific Group Mutual Evaluation. This support included advice and recommendations regarding upgrading the AML decree into law and measures to prepare for, and respond to the Asia Pacific Group's findings and recommendations. Additional engagement is expected to support capacity building within the Anti-Money Laundering Financial Intelligence Unit.
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  Resettlement C
  Indigenous People C
Summary of Environmental and Social Aspects Not applicable
Responsible ADB Officer Stephen Schuster
Responsible ADB Department Southeast Asia Department
Responsible ADB Division
Timetable
Concept Clearance 19 Mar 2009
Fact-finding 14 May 2009 to 14 May 2009
Approval 05 Feb 2010
Financing Plan / TA Utilization Top TA Amount
ADB Others Gov Total Approved Amount Revised Amount
$500,000.00 $0.00 $150,000.00 $650,000.00 $750,000.00 $0.00
 Total Commitment Uncommited Balance Total Disbursement Undisbursed Balance
$534,943.06 $215,056.94 $456,210.22 $293,789.78
© 2008 Asian Development Bank

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