International Finance
Banking Cover Story Magazine

Kicking Off Laos’ Banking Revolution

IFM_ Lao Development Bank
LDB has grown in each area in terms of personnel, professionalism, and modernization by applying new technologies in the banking network

The Lao Development Bank Co., LTD (LDB) is not only one of the largest commercial banks in Laos but is also considered one of the most outstanding financial institutions to watch out for in 2023.

Over the past two decades, the bank has actively and progressively contributed to the implementation of the state’s policies and guidelines, based on its rights and roles, in order to stimulate Laos’ social-economic development. Owned by the Ministry of Finance (MOF) and operating under the Bank of Lao PDR, LDB also actively complies with both domestic and international regulations.

After 1999, the Bank of Laos issued a policy to restructure state-owned commercial financial institutions, as apart from being localized in nature, these banks also lacked financial capacities and were riddled with overlapping organizational structures, along with other issues such as high operational costs, low competition capacities, limited business operations, and less openness to international cooperation.

Therefore, the government merged two local banks, Lane Xang Bank Limited and Lao Mai Bank limited, as one in 2003, which came to be known as Lao Development Bank (LDB). The purpose of this merger was to revitalize and rebuild strong stability, recreate trust in the society, turn the banking operations into a well-run business and facilitate the national socio-economic development with more qualified and competent personnel. The bank also strives to ensure its clients’ rights and interests, while effecting the implementation and expansion of the Lao government resolutions.

LDB has gone through a range of challenges, as the Laos economy kept on developing. Over the merging period, the policy was also changed and made flexible. With steady growth in terms of total assets, human resources, and technology development, the bank used the former accounting system called “Bank 2000” before migrating to the new Core Banking System “T24” in 2010.

Since March 2010, all LDB branches were connected to the bank’s network, which became online across the country. The Bank has also introduced new products and services such as ATMs, and EFTPOS (Electronic Funds Transfer Point of Sale), apart from becoming a pioneer, in terms of introducing Mobile Banking in the form of “M-Commerce”. ATM-based financial transactions became the first group of banking operations to fully integrate mobile banking into its e-commerce fold, apart from modernizing many aspects of its services. LDB is also providing loan services to promote and develop small and medium enterprises (SMEs), with an aim to strengthen the national economic base, create jobs for local people, and improve their lives.

However, the challenges from the COVID pandemic and economic recession are unavoidable to LDB. So, the privatization policy by the merger with Chaleun Sekong Energy Co., Ltd was applied to the bank in order to improve its performance. The vision behind the merger was also to implement the new policy and directions of the Lao government to transform and improve the structures of state-owned enterprises and commercial banks to become joint ventures. The government agreed to sign the joint venture MOU between Chaleun Sekong Energy Co., Ltd and the Ministry of Finance on 17/03/2021, thus commencing the joint study and discussion on issues such as the organizational structure and personnel and joint venture agreement. Through the study, research, and implementation in a strict and concise manner, LDB achieved outstanding results in the compliance, rules and regulations front. The government agreed to sign the joint venture agreement on 01/09/2021 between Chaleun Sekong Energy Co., Ltd holding 70% while 30% remaining held by the Ministry of Finance, of the shares.

To deal with the challenges of the post-COVID period, Lao’s domestic population will contribute to the government’s policy to stimulate the economic recovery by creating a clean hydropower export industry, supporting Lao eco-tourism with a focus on potential entrepreneurs, promoting the agricultural sector to serve society within the country to meet the needs of local people throughout the country, providing trade-investment support, shops or distributors, and hospitals. LDB is actively working towards these goals to ensure that the businesses have access to finance sources at reasonable interest rates, apart from being able to perform management-related duties smoothly.

Through the joint ventures and management under Chaleun Sekong Energy Co., Ltd, LDB improved and reformed the organizational culture and working approach of its Board of Directors as well as the technical staff. Right now, it has more than 18 branches, 75 service units, 263 ATM machines, and eight currency exchange units across the country. LDB has been solving many issues, apart from determining and declaring the bank’s vision, missions, strategic plan, and business operation directions. Another obvious thing is the rapid business drive of the new standardized corporate governance and new Board of Directors, which is full of knowledge with great ability, expertise, experience, and professionalism, combined with the inspirational leadership of its Chairman, Mr. Sitthisone Thepphasy, who has a broad vision, apart from possessing great leadership-direction on business operations, knowledgeable skills and insights, ethics, and self-discipline.

Following the joint venture restructuring, LDB held a general meeting with the shareholders to approve the organizational structure, which consists of the Board of Directors, the Board of Management, the committees to the Board of Directors, the independent disciplinary committee, division committees, branch committees, and unit committee. All these panels met the international standard on corporate governance, known as the three lines of defence.

Mr.Thepphasy said, “I shall manage and drive LDB’s goals strongly. I would develop the LDB leadership staff so that they become stronger, more courageous, and responsible towards the target of fulfilling teamwork with professionalism and transparency, apart from having a cordial relationship with each other, and maintaining proper behaviours to achieve the target of making the organization stronger and profitable one. They must also ensure that our business operations comply with the regulations, as well as keeping the satisfaction of business partners in mind, so that the customers use our services more.”

LDB has revised its key documents in line with the latest business structure (which changed from the old to the new one), with a goal to adhere to the slogan “Change for the Target to Success”, which envisions the financial institution to be more concise, standardized, complete, harmonious and consistent, apart from sticking to its strategic plan, vision, and business operation approach under the new management, in order to be stronger comprehensively and sustainably, in terms of profits.

In addition, the documents’ improvement programme started with the revision of LDB’s internal regulations. This regulation set is the financial institution’s main document and it is based on the law on commercial bank management and related rules such as relevant regulations of the Bank of Lao PDR.

LDB has the vision of becoming the bank that customers can trust for getting the best services, the best technology, and the best staff responses. To realize this, the bank has taken measures towards reforming and building senior executives with ideas, imagination, teamwork models, and quality management by prioritizing each strategic task to satisfy its customers and partners effectively and sustainably. Apart from that, LDB has goals of reforming the research/study method form, building a professional team or procuring professionals to train and help decision-making in a highly systematic, scientific, and unified manner, to ensure the general interest, along with maintaining the bank’s status of being a profit-making institution with great responsibility and ethics.

Another priority area is to develop tools for analysing investment and cost-balancing approaches as scientific return indicators to facilitate accurate, clear and effective decision-making.

The Chairman of the LDB’s executive committee, Mr. Chanthanome Phommany, while talking about his organization’s highly successful transformation journey, remarked, “In the past 10 months, I would like to confirm that all parties, including the Lao government, the Bank of the Lao PDR, employees and customers have pleasantly welcomed the new board of directors with satisfaction and provided good support. We have goals and strategic plans defined in the 6-month plan before officially signing a joint venture with the government. I and the board of directors have led and managed the organization with a clear vision, have a complete systematic plan, focus on actual work, and transform the new mechanism of the Lao Development Bank to be able to run smoothly and effectively.”

As a result, LDB currently has a significant assets growth at 245% compared to 2021. In 2022, LDB was a profitable financial institution with positive cash flows. The earnings increased at significantly faster rates than Laos’ overall banking industry. ROE was 31% and NPL was only 0.02% at the 2022 end.

Giving his insights to International Finance about LDB’s transformation journey, Mr Phommany added, “We can give you some examples to get an understanding of how we think now. One – we thoroughly analysed the bank financials and business before we devise our strategies. We knew exactly how many thousand dollars are un-utilized, we calculated the exact Cost of Funds, we knew what exactly affects our Cost of Funds, we could precisely tell which branch is overusing funds with fewer returns, we could precisely see which branch overspends (in comparison to their business volumes) and so on.”

“We have defined a clear strategy, with the work of the board of directors in a systematic manner. All goals and action plans are defined in a standardized structure. Two – based on all our research & analysis, we had clear and focused strategies with the work of the board of directors in a systematic manner. Goals and action plans for all verticals & horizontals were well structured. Three – We have recruited employees with the knowledge and experience and we have improved the welfare policy for employees to stimulate and encourage the performance of employees,” he further added.

Mr Phommany also shared examples like LDB creating modern technologies and training its employees to operate via those solutions, in order to transform the company’s image.

Technology was once a pain point for the financial sector in general, especially across small markets. While they require huge budgets to stay in touch with the breakthrough solutions, the investments on the technology front have to bring back monetary benefits too. Therefore, the bank put a lot of effort to upgrade and develop LDB’s digital and core banking systems.

“We have improved the technology continuously and firmly. This could produce a good result as we can see the number of customers who have used our Mobile App (LDB Trust) has significantly increased and so on etc…” Mr. Phommany remarked. LDB has grown in each area in terms of personnel, professionalism, and modernization by applying new technologies in the banking network more and more than ever before.

“Although the technology budget is a huge amount and could be the major challenge for our development, we have some special reserves, which were related to profit generations and market demands. We have to ensure what you develop and offer to the market is suitable for customers’ behaviours. In addition, we also have many internationally recognized and renowned technology development partners. Therefore, all we did was to choose the right tech partners and motivate them to do better,” Mr Phommany said, while talking about LDB’s successful journey on the technology front.

“As of now, we can only say keep watching. We are determined to change the banking segment and we would surely provide what is best for our customers and for our staff,” he remarked.

Over two decades, the Bank has been upgrading its system and introducing various products and services to meet the current and future lifestyles such as deposits, loans, fund transfers, ATMs, Credit and Debit Card (Union Pay, Visa), mobile banking (LDB TRUST), LDB BIZ (Payroll), online statements, and EDC, SWIFT, Western Union, E-border and so on. Both LDB Trust and LDB BIZ have been performing soundly via mobile phone and web-based platforms to provide 24/7 convenient customer services such as money transfers, top-ups, bill payments (electricity, water, loan), easy passes, etc.

LDB TRUST has emerged as a game-changing one, with its mobile banking and E-Wallet facilities, to serve customers in a more convenient, quick, and modern manner with different features in order to process financial banking transactions including paying bills, fund transfers, etc. The users can manage their own money and follow bank statements in real-time by themselves. Apart from financial transactions, LDB TRUST can also be used for gaining market information on the gold price, Bitcoin value, mining, FX rate, and interest rates. Customers and businesses can track their fund transfers; check bills and promote their products as well (for businesses only). Currently, over 50,000 merchants are using the platform.

LDB BIZ is an internet banking solution for corporate customers such as private companies and international organizations. These ventures can process financial transactions by themselves without stepping inside LDB branches. It’s a safe and convenient method, as all the users need to do is log in on the web browser/application via computer, tablet, or smartphone.

Apart from offering international bank transfers by SWIFT (Society for Worldwide Interbank Financial Telecommunications), API, Western Union, and E-Border, LDB puts a special focus on the importance of strengthening and implementing risk management on the compliance related to laws such as Anti-Money Laundering, Combating the Financing of Terrorist (AML/CFT) and Foreign Account Tax Compliance Act (FATCA). LDB not only has created policies and procedures related to AML/CFT and international standards including Know Your Customer (KYC) and Customer Due Diligence (CDD) implementation, but also has the standard automated AML Compliance system, qualified personnel who has knowledge and skills on the AML field and has an AML/CFT program that meets the international standard.

The first one is SWIFT Sanctions screening, which enables LDB to have the continuous assurance that no blacklists and sanction lists are transacted through LDB’s system.

The bank uses this to screen both incoming and outgoing transaction messages. If any of the messages match with the latest sanctions list, the financial institution gets real-time alerts and rejects transactions that are considered true hits.

Then comes the second mechanism in form of FICO Tonbeller compliance solutions or Siron AML, Siron AML Analysis and Siron KYC. The bank intends to use them to protect its products, services and its customers as well as the partners from financial crime. In the context of Siron AML and Siron AML Analysis, these two parts are used to prevent money laundering such as stopping criminals from becoming customers and monitoring suspicious activity. The bank uses Siron KYC to identify customer risk rating, and customer onboarding screening against sanctions and blacklists and is the tool for the bank to implement its customer acceptance policy.

The LDB recently bagged two awards, “Fastest Growing Commercial Bank in Laos” and “Best Employee Welfare Initiatives in Laos” at International Finance awards. This recognition comes as no surprise, given LDB’s track record of being one of the most customer-friendly and reliable banks in Asia.

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