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Central bank seeks to strengthen banking through Depositors Protection Fund
The Bank of the Lao PDR (BOL) is calling for the Depositors Protection Fund (DPF) to be expanded by focusing on the quality of members in order to stabilise the banking system.
BOL Vice Governor Mr Sonexay Sithphaxay made the call on Monday at a ceremony in Vientiane to welcome new DPF members.
“It would be good for all re gistered banks to join the DFP, but the fund should focus on mobilising quality banks and financial institutions,” he said.
The fund was created in 2000 with the aim of boosting the domestic economy by encouraging people to deposit money in banks instead of hoarding their savings at home.
Mr Sonexay said membership in the DPF not only builds confidence in a bank but also improves its image, so the fund should seek ways to bring strong institutions into the fold.
The DPF learned that in the United States 140 banks went bankrupt in 2009 and 157 in 2010, costing the Federal Deposit Insurance Corporation around US$60 billion to maintain stability and public confidence in the banking system and to prevent mass cash withdrawals.
Mr Sonexay said that at present the DPF is very small and could only compensate about 10 percent of total money deposited in the system should a major financial problem occur.
He also recommended the DPF join the BOL's Commercial Bank Management Department in overseeing the operations of banks to minimise the risk of a crisis that would lead to use of the fund.
“The DPF should comprehensively study the history and outlook of all banks and financial institutions before accepting them as members,” he said.
He also reminded those gathered about a rumour that diminished customer confidence and resulted in mass withdrawals, and advised the DPF to work closer with the department to build understanding and confidence among depositors and put their minds at ease through good communications and explanations.
Mr Sonexay said he was confident the DPF would make good progress by building good relations with commercial banks and related units, increasing the strength of the fund.
vientiane times
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