Four large Thai banks have decided to close their branches in Laos, mainly attributed to tighter regulations and higher regulatory costs while business activities declined.
The branches are Thai Military Bank's Vientiane branch, Bank of Ayudhya's Savannakhet branch, CIMB Thai Bank's Vientiane branch, and Bangkok Bank's Pakse branch in Champasak province.
A source from the Thai banking industry who requested anonymity said tougher regulations imposed by the Lao authorities affected the ease of doing business in the country.
The Bank of the Lao PDR (BoL) has tightened regulations supervising banking business during the past five years in several areas, particularly lending and foreign exchange management, said the source.
In addition, the central bank implemented new rules during the past three years requiring foreign commercial banks to raise their minimum registered capital from 100 billion kip to 300 billion kip per branch.
This new regulation led to significantly higher operating costs, said the source.
Lower business activity, particularly cross-border trade and investment between the two countries, also dampened business operations in Laos, said the source.
Thai corporations, which are the key client base of these Thai banks, have discontinued their business operations in Laos. As a result, four Thai banks closed branches in the country over the past few years, though the process of closing the branches took a considerable amount of time.
"Given these factors, the four Thai banks revised their business strategies and decided to close some branches that did not generate returns as targeted in order to control their expenses," the source said.
The Deposit Protection Office (DPO) of the Laos central bank announced this month that four Thai commercial bank branches in the country voluntarily terminated their membership in the DPO and closed their operations based on adjustments to their business strategy at their head offices.
Although the four Thai banks are also concerned about the higher rate of inflation and the depreciation of the kip, these are not key concerns compared with the regulatory risk and decline in business activity, said the source.
Bangkok Bank, Bank of Ayudhya (Krungsri), Krungthai Bank, Siam Commercial Bank and Kasikornbank (KBank) continue to do business in Laos.
Pattarapong Kanhasuwan, executive vice-president of KBank, said the bank has two branches in Vientiane.
KBank sees business opportunities in neighbouring countries, particularly related to China's investment in infrastructure projects, including the China-Laos railway project. China's relocation of manufacturing facilities will support investment in Laos as well as other Asean nations, he said.
Large Thai corporations and mid-sized enterprises are the bank's key customer segment in Laos, said Mr Pattarapong.
KBank typically offers fund transfers in local currencies, which facilitates cross-border trade, thus containing foreign exchange risk. The bank has no non-performing loans in its Laos loan portfolio, he said.