Bangkok Bank awarded banking licence in Myanmar

Investment thesis
BBL is the only Thai bank with a significant offshore operation (26-full-service branches) or much business outside of Thailand (17% of its total lending). That makes it the banker of choice for Thai firms with major operations overseas or that are looking to expand abroad. It also has the highest loan loss coverage ratio of 216% and the highest capital adequacy ratio of 17.2% (Tier-1: 14.8%) in the sector, so there aren’t any concerns of capital-raising being necessary in the foreseeable future. BBL trades at a YE15 PBV of 1.1x against a regional mean of 1.6x. Our BUY rating stands.

BBL awarded a banking license in Myanmar
Of the Thai banks that applied, BBL was only one to be awarded a preliminary foreign banking license for Myanmar. It has maintained a representative office in Yangon since 1995 (the only other Thai bank to keep a representative office with an unbroken presence was KTB).

Eight other banks were awarded preliminary foreign licenses yesterday—Bank of Tokyo-Mitsubishi UFJ, Sumitomo Mitsui Banking Corp, Mizuho Bank, the Industrial and Commercial Bank of China, OCBC (Singapore), United Overseas Bank, Maybank and ANZ (Australia). The licenses mark the first time foreign banks have been permitted to operate in Myanmar since 1963.

Scope for banking licenses
The preliminary banking license endows BBL with first-mover advantage among Thai banks. The licenses will restrict BBL and the other foreign banks to lending only in foreign currency (not in kyat Myanmar’s currency, unless they partner with a local bank). Presumably, in addition to being able offer project loans, they will be allowed to offer working capital, trade finance and other corporate services. We expect BBL’s greater presence in Myanmar to cement its position as the banker of choice for Thai firms with operations in the country and enable relationship-building with indigenous companies.

Potential for business growth
Myanmar’s GDP will grow 7.8% this year and 7.8% in 2015, according to ADB forecasts, making it one of the fastest-growing economies in the world (albeit from a low base). That growth will be buoyed by the easing of western sanctions and newly-regained access to development finance from the World Bank and the ADB.

We expect investment to be dominated by infrastructure development (especially power generation and transmission) and extractive and labor-intensive industries (including tourism) during the next five years or so. Because of the dearth of suitably skilled tradesmen and engineers in the country, initially even quite low-level contracting work will involve non-Myanmar companies. Thailand’s proximity makes it the obvious source of contractors. And contractors need bankers.

Source: The Nation

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