YANGON — Myanmar’s central bank confirmed it will continue to take a measured approach to economic liberalization, despite facing criticism that the country is taking too long to unshackle its financial sector.
Speaking to foreign companies, investors, government officials and others at a conference last week in the country’s capital, Naypyidaw, Set Aung, the bank’s deputy governor, acknowledged that the process of handing out licenses allowing foreign banks to operate is “already a bit late.”
A decision on the licenses, between five and 10 of which will be handed out to hopeful applicants, is expected within weeks, though initially planned for the first quarter of this year. Banks including Australia’s ANZ, Japan’s Mizuho Bank and Singapore’s United Overseas Bank U11.SG -0.53% are among the 25 that have applied for a license.
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The central bank, he said, is taking a “cautious approach” — including initially restricting the activities of foreign banks — to suit Myanmar’s macroeconomic environment, which is not fully mature, and has no mechanisms to stabilize it should risk be introduced into the system. Foreign banks, he said earlier, will initially be restricted to just one branch in Myanmar, and will likely only be able to lend in foreign currency, rather than the local Kyat, unless they make the loan through a local bank.
During an interview with the Wall Street Journal in New York this week, Mr. Set Aung elaborated on his comments: “Everything has to be done in sequence. There are no shortcuts … in the financial sector. Without having the necessary functioning markets, you can’t expect the necessary financial instruments to be available.”
But he also reassured investors that the license selection process was on track: “It’s going to be finished as scheduled … by the end of September. As soon as the process is finished, we’re going to make an announcement,” he said.
The Central Bank’s conservative approach, particularly around delaying the entry of foreign banks and initially restricting their activities, has been criticized by foreign investors who continue to complain about the difficulties of accessing capital. Local banks in the country do not have the capacity to support large foreign multinationals, experts say, and many foreign banks currently do not facilitate transfers to banks there, owing to lingering legacy of decades of harsh economic sanctions imposed on the once-pariah state.
The Myanmar government in recent years has taken steps to liberalize its macroeconomic sector, including adopting a managed float for its currency in 2012, and establishing an independent central bank this year.
But the delays and confusion around allowing foreign banks access to the market has invited criticism that the government is pandering to local business interests and taking too long to get basic financial structures in place. Standard Chartered, a bank widely tipped to win a license to operate there, chose not to apply for a license.
Foreign companies “are thinking that perhaps [Myanmar] is a country they don’t want to operate in, given the early stage decisions are taking too long,” said Stuart Witchell, senior managing director at FTI Consulting FCN -2.14% in Hong Kong, who helps clients entering Myanmar with due diligence and risk mitigation.
Mr. Witchell said he has seen a drop in the number of enquiries to do due diligence for companies in Myanmar, and that banks that had initially asked his firm to monitor the macroeconomic situation there have stopped requesting these services.
“They say that the process could go on forever,” he added, and potential investors are considering other markets in the region instead.
Mr. Set Aung, responding to criticisms, said that people in Myanmar have had “over-expectations” on the pace of reforms.
“Most people don’t really see the invisible reforms but the visible reforms won’t be sustainable unless the invisible reforms take place,” he said.