Thai banks highlight headwinds in Laos as economy slows

Thai banks have highlighted challenging business conditions in neighbouring Laos, where Thai investors have capitalised on advantages like low labour costs and custom tariff waivers under the ASEAN Economic Community (AEC).

Thai investments in Laos span various industries, including agriculture, clothing, electricity generation, and banking.

Pathathai Kulachan, chief business officer for ASEAN at the Bank of Ayudhya (Krungsri), said its Lao business has slowed, with less aggressive extension of loans. Economic slowdown has created a high-risk business environment in Laos, leading to depreciation of the Lao kip. The central bank responded by hiking the policy interest rate by 2.5%.

“We have not closed our operations in Laos, but we are not rushing to expand our business or extend new loans as we did before. With the risk from kip depreciation, Laos has raised interest rates to 10.5%, which makes it difficult for us to offer new car loans. This has impacted our margins and revenue, forcing us to adjust our strategy to focus on high-yield products,” she said.

Kris Chantanotoke, CEO of Siam Commercial Bank (SCB), said the bank’s branch in Vientiane continues to operate despite the economic slowdown. The Laos banking business remains profitable, and there are no plans to reduce or change SCB’s loan portfolio, he added. However, he acknowledged that SCB’s loan and deposit portfolio in Laos is relatively small, meaning it is not significantly affected by local business conditions. 

Chaturong Bunnag, president of the Thai-Lao Business Council, said Thai investment in Laos is sluggish due to investor concerns over the Lao economy. While the economic outlook remains stable, significant growth is not forecast. The deaths of six foreign tourists from suspected methanol poisoning last month have also dealt a blow to Laos’ tourism industry.

Laos attracted around 4 million tourists in 2024 as of early December, generating significant economic benefits.

Chanthone Sitthixay, director general of the Lao Bullion Bank (LBB), has voiced concern over the possibility of Thai banks reducing investments in Laos amid reports that high levels of foreign debt are pressuring the domestic economy and the kip.

“I don’t believe Thailand and Laos will abandon each other. If Laos' border economy thrives, Thailand’s economy benefits too, since Lao people often cross the border to shop in Thailand. Reducing investments in Laos would indirectly reduce the flow of funds into Thailand,” he said.

The Laos government is relying on natural resources to provide an economic boost, with plans to become “the battery of Southeast Asia” by exporting hydropower to neighbouring countries.
It is also seeking to expand its gold refining industry. PTL Holdings, led by Chanthone, is investing several billion baht to construct a 100-tonne Laos refinery that will rank among the world’s top five gold refineries.

Laos also continues to develop as an international trade gateway and transit hub, with Thai durian exports to China generating revenue from border service fees.

Chanthone emphasised the importance of government-to-business dialogue with Thailand to build confidence and maintain strong economic ties between the two nations.