First foreign banks in Myanmar herald possible sector shake-up

This week’s arrival of the first three foreign banks to be allowed to open branches in Myanmar has already signalled a possible shake-up of the banking sector, with Japan’s Sumitomo Mitsui Banking Corporation expressing interest yesterday in eventually acquiring a minority stake in Kanbawza (KBZ), Myanmar’s largest lender.

Hiroshi Minoura, vice chair of SMBC, one of Japan’s big three banks, told reporters at the opening ceremony of its downtown Yangon branch that he saw the attraction of taking an equity stake of 15 to 20 percent in KBZ, with which it launched a close partnership three years ago.

“We definitely hope that we can invest in local banks. We foresee a huge expansion in local banking. To fortify our ties with KBZ we need to have a capital injection,” Mr Minoura said, noting that SMBC had previously taken minority stakes in local banks in Vietnam and Indonesia.

But he stressed that this would require a change in regulations by the Central Bank of Myanmar, and that SMBC would not want to launch a full takeover.

“We have no interest in taking over any Myanmar banks,” he said. “Even if you [Myanmar] open up your market, we’ll never occupy or conquer your local banks,” Mr Minoura added.

In granting licences last October to nine foreign banks to open branches in Myanmar, the Central Bank imposed tight restrictions that analysts said were intended to ensure that local lenders would not be swept aside or swallowed up. Foreign lenders may not engage in retail banking and are restricted to lending foreign exchange to foreign companies and to Myanmar banks. The foreign banks may deal only in four currencies and have been barred from hiring staff from local banks.

Bank of Tokyo-Mitsubishi UFJ opened its branch in Yangon on April 22, with an initial capital investment of US$100 million, while SMBC, investing $200m, and Singapore’s Oversea-Chinese Banking Corp chose to open yesterday, considered an auspicious day in the Myanmar calendar.

Mr Minoura said he looked forward to further deregulation by the Central Bank and stressed that his priority, once permitted, would be to lend to infrastructure projects such as ports and power plants that required substantial amounts of capital which local banks could not raise.

“We see this country as full of treasure,” he said, referring to Myanmar’s rich natural resources and strategic location, “but closed for decades.” He said he hoped that changes in Central Bank regulations would allow SMBC to take part in project financing with Myanmar partners in the near future.

U Nyo Myint, senior managing director of KBZ Group – an extensive conglomerate which also includes insurance, hotels, construction, two airlines, healthcare and agriculture projects – did not rule out a possible capital injection from SMBC in return for an equity stake. But he also stressed that the bank’s partnership with SMBC was not exclusive.

“This is not an exclusive arrangement. We remain on good terms with other banks. No bank can stand alone,” he said. “But some are closer than others,” he added, noting that SMBC had chosen to base its branch in Yangon’s prestigious Strand Square business complex that KBZ had developed on a lease from the government.

He pointed out that Central Bank regulations did not yet permit foreign banks to acquire interests in Myanmar banks. “We are moving step by step. We are in a very initial stage,” he said.

Both bankers stressed the need for technology transfer from foreign to Myanmar lenders.

A Myanmar FinScope survey in 2013 found that only some 5pc of people held a bank account. Mr Minoura noted that most Myanmar workers would withdraw their entire salary in cash each month as they lacked the means to make payments electronically, although this situation was starting to change rapidly. Mobile payments are in their infancy, although KBZ has already entered this new sector.

U Nyo Myint said KBZ had a market share of about 40pc with over 300 branches, compared to its nearest rival, the Cooperative Bank, with about 200 branches.

Mr Minoura said the rapid development of mobile banking in Myanmar could “shrink the banking history of the last 40 years in Japan to as little as five years here”. But he predicted that the expansion of local bank branches would continue in rural areas for the next few years.

“Our goal is to introduce cell-phone payments systems in this country so that people will keep their money in their current accounts in the bank,” he added.

Japan’s Mizuho Bank is also expected to open for business in Yangon, giving Japan’s top three lenders a foothold in what is regarded as frontier territory, and representing a success for Prime Minister Shinzo Abe, who has focused on developing Japan’s financial presence in Southeast Asia.

“I do believe that strengthened collaboration among domestic banks in Myanmar and banks of Japan will cultivate investment promotion and ultimately the economic development of Myanmar,” U Kyaw Kyaw Maung, Central Bank governor, said on April 22.

“We saw this as a chance that comes only every 10 or 20 years,” Mr Minoura said of SMBC’s decision to establish a presence in Myanmar. “We did not want to miss this chance,” he said, expressing confidence that elections later this year – however unpredictable the results – would not change the current reformist trend.

Source: Myanmar Times

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