Banks on charm offensive in Myanmar

FOREIGN banks venturing into Myanmar are expected to flex their muscles by investing in, and advising, the fledgling local financial market – and that includes efforts to lift standards of local bank staff.

The charm offensive in recent years cannot be underestimated. Besides proving long-term commitment to this frontier market, international lenders need the blessings of domestic regulators to expand beyond one branch – and further liberalisation must be guided and calibrated to avoid earlier trip-ups made in other young Asean markets such as Vietnam.

“Being the ‘last frontier’ has its benefits. While there are striking similarities between Vietnam in the 1990s and the Myanmar today, Myanmar has the benefit of hindsight from Vietnam’s mis-steps,” said Melvin Poon, Myanmar financial services leader, PwC. “Myanmar appears to be treading in the same path but definitely with more caution.”

Today, Vietnamese banks suffer from high levels of bad debts that reflect overly rapid credit growth in 10 years, the lack of proper credit risk assessment, and a weak framework for loan reporting and classification, Chan Jin Lai, Asia analyst at BMI Research, said.

To be clear, analysts and bankers applaud the speed at which legal reforms have been put in place in Myanmar in the last few years. Laws governing cross-border transactions have eased, and the central bank is expected to align its regulatory structure with global best practices, said Satya R, partner at KPMG in Singapore. “The reforms are going through their most critical phase now, and their success would determine how well international banks can function in Myanmar.”
Japanese banks appear to already have a headstart, benefiting from their government’s accommodative stance towards Myanmar, which has been under military rule for more than five decades.

With Bank of Tokyo-Mitsubishi UFJ (BTMU), Sumitomo Mitsui Banking Corp, and Mizuho Bank all in Myanmar, the three largest lenders in Japan will take their battle beyond the home front. Given the big coup by the Japanese lenders, it comes as no coincidence that the Japanese government had written off more than 500 billion yen (S$5.5 billion) in debt owed by Myanmar over the last few years.

Japan did not impose trade and financial sanctions on Myanmar during the latter’s fifty years of military rule, and using debt pardons, pushed the country to progress with reforms that included an easing of media censorship and the enactment of a new foreign investment law.
Singapore, like Japan, was granted greater representation for its banks than other countries. UOB and OCBC successfully clinched the licence needed to open a single branch in Yangon, and will focus on providing trade finance and cash management services. But DBS, South-east Asia’s largest lender, failed to get approval.

Singapore has offered training and education to Myanmar instead of offering direct financial aid. Under the Singapore-Myanmar Technical Cooperation Programme, senior Myanmar officials attend courses on topic such as urban planning and public housing and go on study visits to observe Singapore’s systems and policies.
Investments booked through Singapore make it the third-largest investor into Myanmar as at fiscal 2015, with investments totalling US$8.8 billion, data from the Myanmar government showed.

“Singapore is an important hub for trade and finance in the region, with a significant proportion of the regional trade, including trade with Myanmar, facilitated through Singapore,” said head of OCBC’s global commercial banking Linus Goh. “The historical links between Singapore and Myanmar in the areas of trade and investment flows is a contributing factor to the strong ties between both countries.”

A Bloomberg report, citing comments from the Myanmar deputy finance minister, said that US companies have been investing indirectly into Myanmar through Singapore. As one example, UOB said last year it offered financing to US-based APR Energy for operations in Myanmar.

Banks are careful of any political entanglements – with the US still restricting business ties between American firms and certain military figures in Myanmar – especially if the lenders have an American branch. All three Singapore banks have a US presence.

Singapore lenders have also likely gained from the government’s public stance that sanctions against Myanmar should be removed – a position also articulated by other Asean leaders.

What foreign lenders have done is to boost the banking sector through scholarships, donations, and education – many now boast of ties with the local banks, schools, and regulators.

Behind closed doors, foreign banks have also pledged not to poach capable staff from local banks. This reflects careful protection of the domestic banking sector, said Mr Poon, as the government balances healthy competition, while ensuring that domestic banks can flourish.

“A ‘battle for talent’ is now emerging in Myanmar, with foreign investors looking for talented staff and willing to pay premiums to hire the best and the brightest,” he added.

“Through these scholarships and donations, it is a matter of paying it forward for a future loyal yet upskilled workforce to help the growth of foreign banks and companies.”

Bankers such as OCBC’s Mr Goh openly say that the foreign lenders are expected to play a supporting role in lifting the overall standards and capabilities of the banking industry.

Likewise, Go Watanabe, BTMU’s chief of Asia & Oceania Region, said: “I think the Myanmar government expects Japanese banks to contribute significantly to the country, given its track record in adopting long-term views towards new developing markets.

“From the onset, we have made a commitment to the Central Bank of Myanmar that we will help grow the talent pool by hiring staff with no banking experience and training them.”

Still, there are bigger issues that are beyond the banks’ control, notably, politics, including the chummy ties between the local lenders and the junta as well as corruption. These could pose longer-term questions, analysts said.

“As it stands, the privately owned banks in Myanmar are dominated by well-connected businessmen who in some cases enjoy a very close relationship with both the Tatmadaw and the USDP,” said Andrew Wood, head of Asia country risk research, BMI Research, referring to Myanmar’s military, and the Union of Solidarity and Development Party respectively.

“Given that a rapid expansion of operations by foreign banks would pose a major competitive challenge for these local banks, these vested interests will have to be addressed before the foreign banks can gain a major foothold in the country.”

Source: Business Times

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