It covers payment methods and information on, banking systems, foreign exchange controls, and U.S. and correspondent banking.
Methods of Payment
Depending on the size of the transaction, payment can be made using EFT, cash, or letter of credit.
New private and foreign banks provide modern banking options to Lao and foreign businesses, with a total of 44 banks licensed in Laos. Laos does not have a national deposit insurance system and supervisory standards are low. Technical expertise and the range of services offered at domestic banks are limited, though several local banks are expanding into internet banking, e-wallets, and making efforts to capture the significant “unbanked” portion of the Lao population. While it continues to receive outside assistance, the Bank of Lao PDR engages in weak supervision of the sector.
According to the Asia Pacific/Regional Review Group’s visit in April 2017, the regional arm of the Financial Action Task Force (FATF), the government has advanced in strengthening its anti-money laundering (AML) regime. As a result of the Lao government’s steps to improve the legal and regulatory AML framework, including drafting a new AML/Counter Financing of Terrorism Law, FATF removed Laos from its “gray list” of banking jurisdictions in June 2017. However, enforcement of rules and regulations is weak but improving, and lingering concerns may continue to affect the ease with which international banking transactions are conducted in Laos. The FATF’s plans to visit Laos and review the AML regime have been repeatedly delayed due to the COVID-19 pandemic.
Foreign Exchange Controls
Lao law maintains that payment for goods and services within Laos should be conducted in Lao kip. However, companies that deal internationally have some leeway to conduct business in foreign currency as well. Debts should not be paid in foreign currency within the Lao PDR except for cases in which the Bank of the Lao PDR has proposed the Lao government approved such a transaction. In practice, the Lao economy is highly dollarized and Thai baht or American dollars (as well as Chinese Yuan in some areas) are frequently used for private transactions involving imported goods. A holder of foreign exchange who needs to make payments within the Lao PDR can exchange for kip at a commercial bank or at a foreign exchange bureau licensed by the Bank of the Lao PDR. Those who need to use foreign exchange for any of the objectives stipulated in Lao law, such as payment for imported goods, may purchase foreign exchange at a commercial bank or a foreign exchange bureau.
To facilitate business transactions, foreign investors generally open commercial bank accounts in both local and foreign convertible currency at domestic and foreign banks in Laos. Australian, Vietnamese, Thai, Cambodian, Malaysian, Chinese, and French banks currently have a presence in Laos. Bank accounts must be maintained in accordance with the Enterprise Accounting Law.
The law places no limitations on foreign investors transferring after-tax profits, income from technology transfer, initial capital, interest, wages and salaries, or other remittances to the company’s home country or third countries so long as they request approval from the Lao government. These transactions are conducted at the official exchange rate on the day of execution, upon presentation of appropriate documentation. Supply of foreign exchange has in the past been limited in Laos, which imposed a de facto limit on repatriation of capital. Foreign enterprises must report on their performance annually and submit annual financial statements to MPI.
Since 2017, Laos suffered fiscal and monetary difficulties which resulted in low levels of foreign reserves. In response, the Bank of Lao PDR imposed daily limits on converting funds from Lao kip into U.S. dollars and Thai baht, leading to difficulties in obtaining foreign exchange in Laos and frequent differences between official and unofficial exchange rates. The Bank of Lao PDR also imposed restrictions on loans made in U.S. dollars and baht, limiting them to businesses that generated foreign currency. There are no recent reports of restrictions on, or difficulties in, repatriating or transferring funds associated with an investment.
US Banks & Local Correspondent Banks
There are no U.S. banks currently licensed to operate in Laos. BCEL, one of the large government-owned banks, has a correspondent banking relationship with Wells Fargo. Several other non-Lao banks present in Laos, such as the Australian bank ANZ, maintain correspondent banking relationships with large U.S. banks.