The Bank of the Lao PDR stands prepared to rescue Phongsavanh Bank if it should encounter any financial problems due to mass withdrawals, central bank chief Mr Phouphet Khamphounvong said on Friday.
However, the bank governor said he did not expect the private bank to ask for any assistance since it was in a strong financial position and was able to return all monies to customers who wanted to withdraw their savings.
Mr Phouphet was speaking to local journalists after crowds of people flocked to Phongsavanh Bank branches nationwide to withdraw their money after a rumour circulated last week that the bank's owner, Mr Od Phongsavanh, had been arrested.
Depositors believed the private commercial bank would fail without the leadership of its owner, so they rushed to withdraw their money to secure their savings.
Phongsavanh Bank said customers withdrew about US$11 million out of a total of about US$80 million deposited at the bank.
Mr Phouphet said the central bank would not allow any commercial bank to fail as this would destabilise other financial institutions.
“It is the policy of the Lao government and the Bank of the Lao PDR to keep a close eye on the performance of commercial banks. It is the role and duty of the central bank to supervise and stabilise financial institutions in Laos. Accordingly, the central bank cannot allow a commercial bank to fail and go bankrupt.”
He said the supervision of financial institutions today was different from in the past, adding that the central bank has laws and regulations to ensure the stability of financial institutions, to protect and safeguard the interests of depositors.
Mr Phouphet also said the central bank would be fully aware of whether a commercial bank was on the point of failure, so the public should heed the advice of the regulatory body.
The collapse of collective micro-finance institutions in the past was due to the fact that they did not fall under the supervision of the central bank, he said. The bank did not know how much money had been amassed or how much was issued as loans.
Mr Phouphet said that in its supervisory role, the Bank of the Lao PDR was taking an active role in helping Phongsavanh Bank to downplay the rumours.
The central bank had put up notices at provincial branches of Phongsavanh Bank where people did not have media access, aiming to inform the public that rumours of Mr Od Phongsavanh's arrest were untrue and the bank was financially sound.
He said the notice did not intend to discourage people from withdrawing their money, but to state the truth about the bank. It was up to individuals to decide whether to withdraw their money from the bank as it was their right to do so.
