Decision on Bank Debt Classification and Provisioning for Classified Debts
关于银行债务分类及对已分类债务计提准备金的决定
ຂໍ້ຕົກລົງ ວ່າດ້ວຍການຈັດຊັ້ນໜີ້ ແລະ ການຫັກເງິນແຮໜີ້ທີ່ຖືກຈັດຊັ້ນ ຂອງທະນາຄານ
Summary
This decision, issued by the Governor of the Bank of the Lao PDR in June 2018, stipulates principles, regulations, and measures for commercial bank credit management, five-tier classification of debts (loans and off-balance-sheet financial commitments), loan restructuring, and provisioning of general and specific reserves for classified debts, to reduce asset loss risks and maintain bank stability.
Articles
Article 1
Purpose. This Decision stipulates principles, regulations, and measures regarding the classification of debts of commercial banks and the provisioning for classified debts, in order to reduce the risk of asset losses, maintain the soundness of banks, and contribute to economic and social development, ensuring its stability and sustainable growth. Article 2: Interpretation of Terms. The terms used in this Decision shall have the following meanings: 1. Bank means a commercial bank or a branch of a foreign commercial bank established under the laws of the Lao People's Democratic Republic; 2. Debt means credit, encompassing loans and financial commitments, with the meanings as specified in paragraphs 3 and 4 of this Article; [Original text contains OCR errors and bank contact information, not part of the main text, omitted] 3. Loan means a borrowing extended by a bank to a customer, in the following forms: ordinary loan (Loan), overdraft (Overdraft), advance (Advance), and other types of loans as prescribed by the Bank of the Lao People's Democratic Republic; 4. Financial commitment means a commitment obligation agreed upon by a bank in a contract with a customer, in the following forms: credit line (Credit Line), letter of credit (Letter of Credit), letter of guarantee (Letter of Guarantee), letter of payment undertaking, and other forms as prescribed by the Bank of the Lao People's Democratic Republic; 5. Debt difficult to recover means credit classified as substandard, doubtful, and loss; 6. Loan restructuring means the modification of the terms of a loan contract due to the debtor's inability to repay the debt in accordance with the contract conditions; 7. Sound collateral means collateral for the full amount of principal, interest, and recovery costs, provided by collateral or by a third party with a stable financial position and sufficient financial capacity to repay the debt in a timely manner according to the contract term. Chapter 2: Credit Management
Article 2
Credit Management. Banks shall proactively manage credit to align with their own strategies and risk tolerance, market conditions, and the macroeconomy; the management process shall be rigorous, conducted under the guidance of the Board of Directors and the Executive Committee, to enable timely identification, measurement, assessment, monitoring, reporting, and control, aiming to reduce credit risk in a timely manner.
Article 3
Principles for formulating the credit management manual. Banks must formulate the credit management manual in accordance with the following main principles: 1. It must comply with this Decision and relevant laws and regulations of the Lao People's Democratic Republic; 2. It must comply with the bank's internal regulations approved by the Bank of the Lao People's Democratic Republic; 3. It must be consistent with its own strategy and risk tolerance, market conditions, and the macroeconomy; 4. It must clearly define the steps and methods of credit management to serve as a basis for implementation; 5. Move towards international good practices; 6. It must be approved by the Board of Directors; 7. It must be implemented under the guidance of the Board of Directors and the Executive Committee; 8. It must be reviewed at least annually and updated in accordance with risk tolerance, the bank's risk profile, market conditions, and macroeconomic conditions; 9. It must be disseminated and training provided to relevant bank employees to ensure they are aware of and fully understand it, to ensure effective implementation. The manual must be in the Lao language, and the bank must submit a copy of the manual to the Commercial Bank Supervision Department of the Bank of the Lao People's Democratic Republic within 15 days of issuance or update, and report and provide reasons for the update.
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