The creators of a new bank to service the gems and minerals sector will apply for a licence this month, spokesperson U Thet Naing told The Myanmar Times.
If licenced, the new bank will add to a number of sector-specific banks that have opened over the past couple of years, including the Construction and Housing Development Bank and the Myanmar Microfinance Bank. The Tourism Bank Public Company is also pending approval.
The founders of the Gems and Minerals Development Bank are preparing the papers to send to the Directorate of Investment and Company Administration (DICA), said U Thet Naing.
“We need to raise enough initial capital and compile all the documents. We are hoping to have the papers ready within two or three months and to register with DICA by the end of September at the latest,” he said, adding that the bank may open shortly after the coming election.
It will be owned by businesspeople in the gems, gold and minerals sectors, and plans to fund both small and large businesses in the gems industries, as well as helping entrepreneurs with business development, said U Thet Naing.
“Businesspeople have agreed to provide financial support, but we have not yet reached our target of K20 billion (US$15.7 million),” he said.
Entrepreneurs in these sectors are still being invited to participate – in exchange for K400 million they can become a director at the fledgling bank. However, some are sceptical.
“I have no plans to participate in the bank for now because the share price is high, but I intend to become involved later. I have spoken to two gold entrepreneurs about it, but they haven’t signed a contract yet,” said secretary U Kyaw Win of the Myanmar Gold Entrepreneurs Federation. Not many gold or minerals entrepreneurs are able to pay K400 million upfront, he added.
U Myo Myint, president of the Myanmar Mineral Entrepreneurs Federation in Yangon, agreed that only a few in the gold and minerals sectors will be able to pay. “For jade entrepreneurs on the other hand, this amount is nothing,” he said.
Under existing rules, a new bank must have at least K10 billion of initial capital, but the new Financial Institutions Law will require a minimum of K20 billion, he said. To be safe, he will raise K20 billion before submitting the documents to the Central Bank of Myanmar for approval, he said.
The Central Bank is responsible for licencing and regulating all commercial banks. It is aware of the plans to form a gems and minerals bank, said U Thet Naing.
Experts previously told The Myanmar Times that instead of licencing more banks, the Central Bank of Myanmar should focus on streamlining its existing institutions to minimise the risks of a banking sector crisis.
Banks that only lend to a single sector are high-risk, said Vikram Kumar, Myanmar representative at the International Finance Corporation (IFC), last month.
“Banks need a diversified asset base, otherwise it’s a recipe for disaster. For example, one bad year for Myanmar tourism could significantly impact a bank focused on tourism,” he said.
U Myint Han, chair of the Myanmar Gems and Jewellery Entrepreneurs Association (Mandalay), said at the time that the new gems bank will be protected against risk, because its loans will be secured by precious stones, though Mr Kumar pointed out that gems are very hard to value accurately.
More importantly, experts pointed out that a rise in the number of sector-specific banks presents a risk to the entire banking system, as one bank’s failure can trigger a loss of depositor confidence and trigger a wider bank run.
Source: Myanmar Times