Authors: Eitra Myo & May Myat Thu
With the intention to level the playing field for foreign and local banks, the Central Bank of Myanmar (the “CBM”) has allowed the branches of foreign banks in Myanmar to provide any financial services to local corporates, as per the directives issued on 8th November 2018 by the CBM. This is a great opportunity for foreign and local corporates as this will benefit them in the form of a better variety of banking services and greater access to various forms of financing.
Since 2014, the CBM has granted provisional licences to the branches of 13 foreign banks in Myanmar, but these licences limit them to providing wholesale banking services to foreign corporates, local/foreign financial institutions and local corporates in partnership with local financial institutions. However, at the end of 2017, the CBM had started to allow these foreign banks to engage in export financing and related banking services.
Public Interest towards Banking Services
Before 2011, the country’s banking system was very under-developed and cash was the main currency of transactions. People carried loads of cash for every transaction, while their counterparts in neighbouring countries were using advanced banking systems. Opening personal bank accounts was not popular among the locals in Myanmar, therefore most people only had one savings account. Automated Teller Machines were introduced across the country starting from 2011, together with the grant of permits to some private banks in order to conduct foreign exchange transactions, which was a major breakthrough of the reform. Since then, the use of bank accounts by individuals increased rapidly and corporates started to implement their payroll systems through bank accounts. Advancements in telecommunications also enhanced banking systems, thus enabling card payments and mobile banking.
Reforms in the Banking Sector
The banking sector of Myanmar was highly-controlled by the state-owned bank until the local private banks were privatised in 1990 according to the Central Bank Law and Financial Institution Law. In 2013, the Central Bank Law was abolished and replaced by the new Central Bank Law, and the Financial Institution Law had undergone a similar change in 2016.
To date, there are 25 local private banks carrying out banking and financial activities in the country. The top players include KBZ Bank, AYA Bank, CB Bank, Yoma Bank, UAB Bank, AGD Bank, Myawaddy Bank, Myanmar Oriental Bank and Myanmar Apex Bank.
For foreign bankers, the CBM started granting licenses starting from 2014 for them to open branches in Yangon in order to carry out wholesale banking services to local corporates. The number of foreign banks in Myanmar increased up to 13 banks. These 13 banks are MUFG Bank Limited, Oversea-Chinese Banking Corporation Limited (OCBC), Sumitomo Mitsui Banking Corporation Limited, United Overseas Bank Limited (UOB), Bangkok Bank Public Company Limited, Industrial and Commercial Bank of China (ICBC), Malayan Banking Berhat (MayBank), Mizuho Bank Limited, Australia and New Zealand Banking Group Limited (ANZ),The Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV), Shinhan Bank, E.Sun Commercial Bank Limited and State Bank of India.
Further Explanations on the Directive by the CBM
The CBM held a press conference on 14th November 2018, which was led by the Deputy Governors, Mr. Soe Thein and Mr. Bo Bo Nge, in relation to the directive issued by the CBM. They had also responded to questions from the media. According to CBM, foreign banks can grant loans which are denominated in either USD or Myanmar kyat to local and foreign corporates incorporated under the Myanmar Companies Law. The interest rate of a loan which is denominated in USD will depend on the global market price. However, the rate for loans in the Myanmar currency shall be under 13 per cent – this has already been set by the CBM as a standard rate as it was previously applied to local banks.
Regarding the types of financial services offered by the banks, both local and foreign banks can submit proposals to the CBM for approval.
As a side note, lands and immovable properties do not qualify as collaterals for loans to be granted by foreign banks.
Fixed deposits (denominated in USD) at foreign banks are still allowed but the interest rate is not defined. In contrast, fixed deposits (denominated in Myanmar kyats) are not allowed at all.
According to the CBM, it is still considering the proposals by some foreign banks to open new branches in other cities of Myanmar. For the time being, the branch offices of the 13 foreign banks are located only in Yangon.
The current sentiment is well captured by Mr. Soe Thein, who said, “Foreign Banks can fulfil foreign currency demands by local businesses which local banks cannot. Local corporates will now have better access to funds, and dollar injections by foreign banks will help stabilize the exchange rate”. He also added, “Local banks can learn advanced technology, management systems from foreign banks and improve themselves to support the country’s economy”.
Myanmar is no longer in isolation due to the positive political reforms since 2011, which had led to a relaxation of business sanctions and the receipt of international support in social and economic sectors. These changes also attract foreign investments from foreign multinational corporates when they set up offices or headquarters in the country. These changes also benefit local export/import businesses by creating opportunities for them to penetrate overseas markets.
For the reasons set out above, safer and sounder banking and financing activities are much required. Local banks are putting in much effort in upgrading their products and services by implementing international good practices. Yet, local banks are still limited in certain areas in which the foreign banks are strong in.
In conclusion, although Myanmar’s banking systems are becoming more efficient and the use of bank accounts and its related services by the general public is increasing, Myanmar is still an untapped market and there are still many opportunities which lie ahead for foreign banks.
If you wish to know more general or legal information about investing/setting up company in Myanmar, please do not hesitate to contact us.
Vanessa Ng, COO
+65 6535 8100
Eitra Myo, Legal Manager
May Myat Thu, Corporate Affairs Executive
Written by: Eitra Myo & May Myat Thu