Myanmar’s fast track to financial fruition

Much progress has already been made in Myanmar’s financial markets since the country’s liberalisation in 2011, and now it is on the brink of refining its banking laws and establishing the Yangon Stock Exchange.

Myanmar’s financial sector is starting to gain the characteristics that make it look like a newly emerging market, as opposed to the closed economy that it was for 50 years. These include a vibrant banking sector with both domestic and foreign players, the first treasury auctions and, later in 2015, a stock market.

Nine foreign banks received licences to operate in Myanmar last October. They are Singapore’s United Overseas Bank and Overseas Chinese Banking Corp, Japan’s Bank of Tokyo-Mitsubishi UFJ, Sumitomo Mitsui and Mizuho Bank, Thailand’s Bangkok Bank, Malaysia’s Maybank, China’s Industrial and Commercial Bank of China, and Australia and New Zealand Banking Group.

Self-imposed restrictions

The foreign banks are prohibited from operating in the domestic retail space, but Set Aung, deputy governor of the Central Bank of Myanmar, says that these restrictions were agreed in discussions with the foreign banks’ representative offices in the country. “We had consultative meetings with both the foreign banks’ representatives, as well as the local banks, and these are the suggestions coming from the foreign banks’ representatives,” he said in an interview with The Banker at the Myanmar Investment Summit in London in February 2015.

“Foreign banks cannot do domestic retail but they can lend to the domestic financial institutions – this is one area where we can promote collaboration – and they can lend to domestic corporates in the form of syndicated loans,” he adds.

“We have developed policies to promote collaboration between foreign and domestic banks and also to promote and strengthen the domestic financial institutions to put them on a par with foreign banks. Of course, they cannot be completely on a par with foreign banks, but, at the same time, we need to make sure that domestic foreign institutions are healthy and strong, and are not going to be marginalised.”

In Myanmar, a lot of new laws are coming into effect to replace or improve those that were in place during the years that the country was cut off from the rest of world, until the liberalisation began in 2011. A new banking law is currently going through parliament and analysts are hoping that it will make lending easier.

Set Aung says: “The previous financial institutions law did not have detailed provisions. The new law will have a lot of detailed provisions that are in line with international and Basel requirements. The law will require that banks have proper credit risk management policies. Without this, and without having proper asset liability management policies, it is going to be very difficult in any country to allow longer term lending without collateral.

“Under Basel II, banks have to replenish their capital depending on the risk weights of the customer, calculated using the credit rating of the customer. But we don’t really have credit ratings in Myanmar, so we need to develop these too. All of these things are work in progress.”

Development calling

The Yangon Stock Exchange is due to be set up some time in 2015. This is a joint venture between Japan Exchange Group, Daiwa Institute of Research and Myanmar Economic Bank. Set Aung points out that capital markets development is being carried out under the direction of the finance ministry not the central bank, but he anticipates that it will take off faster in Myanmar than it did in some neighbouring countries.

“We have quite a few hundred companies that have already gone public, which is not the case in other underdeveloped countries. Some of the companies have already gone through a stock listing in other countries, such as Singapore or Hong Kong. So companies won’t need to start from scratch in order to list on the stock exchange,” he says.

Foreign investment is new in Myanmar, but already there are moves to equalise the law between local and foreign companies to put them both on the same footing. This would involve combining the Foreign Investment Law with the 2013 Myanmar Citizens Investment Law.

Set Aung explains that the idea is to have equality between domestic and foreign companies, both inside and outside the special economic zone, and for both bank and non-bank financial institutions.

Source: The Banker

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