CBM brings real-time settlement to banks

Myanmar’s banking system has taken another step toward modernisation, courtesy of the Central Bank’s new clearing and settlement system, which will make an “immense difference” to lenders’ day-to-day operations, bankers said.

The long-awaited system – built with the help of the Japan International Cooperation Agency (JICA) – went live on January 6, according to an official at a local lender who is working on preparing his bank for the new system.

Dubbed CBM-Net, it provides Myanmar’s financial sector with a real- time gross settlement system (RTGS) – making the once-manual process of clearing and settling payments almost entirely electronic.

Payments in Myanmar’s economy are largely cash-based, and transfers between individuals often required the physical movement of cash between branches of the same bank and the branches of different lenders.

Under the old system, clearing a cheque written by an individual with an account at one bank, to someone with an account at a different lender was time-consuming.

It required a visit to the Central Bank and a verbal confirmation from the bank at which the cheque-writer had their account, that the person had sufficient funds to honour the cheque.

Banks would have to submit a daily statement on transfers for clearance and settlement to the Central Bank every evening.

“It was cumbersome, complicated and entirely manual,” said an official at the representative office of an international bank, of the old system.

Under the new system, the Central Bank and Myanmar’s local and international banks are connected through CBM-Net.

This means instructions to debit or credit different accounts in different banks can be issued and carried out instantly and automatically. Cheques are cleared through a mechanised clearing house, which is connected to the CBM-Net system and also became active last week.

An RTGS is also a prerequisite for a modern capital market, which Myanmar is in the early stages of building. The new system allows the settlement of trades involving government Treasury bonds and equities, with the first scheduled international public offerings, or IPOs, on the Yangon Stock Exchange only a few months away.

“It’s connected to the financial system – payments for bonds, equities and securities trading,” said the official from the international bank.

The more immediate benefit to Myanmar’s banks is time saved.

“We’ve started using the new system and it’s a much better clearing process,” said Rona Rakhit, the head of group business development and strategic initiatives at CB Bank in Yangon. “It’s saving a great deal of time.”

He added that it would take the financial sector some time to make full use of the new system.

Representatives at local lenders told The Myanmar Times last September that the RTGS could be challenging for domestic banks that had not yet installed core banking systems.

However, at that stage almost all lenders had prepared the necessary fibre connection and data centre, said U Mya Than, chair of Myanmar Oriental Bank and vice chair of Myanmar Payment Union (MPU) – into which the new CBM-Net system was incorporated.

One potential hurdle is that in order for banks to make use of the new mechanized clearing house they have to use standardised cheques, said an adviser to Myanma Apex Bank. The bank he advises does not use these, and will still have to clear cheques manually through the Central Bank, he added.

But in general, hold-ups will not be down to a lack of infrastructure or technical issues with CBM-Net, but because it will simply take banks a few months to get used to the system and its various processes, said the official at the local lender.

“We’re at the very beginning,” he said. “Some banks will struggle to get used to things, but it’s not a system issue, it’s a learning issue.”

A number of bankers were uncertain yesterday about the new system’s capabilities. They disagreed on whether payments can be made from account to account in foreign currencies such as US dollars, or only in Myanmar kyat. The Central Bank could not immediately be reached for comment.

Either way, settling and clearing is not yet taking place instantly, Mr Rakhit said, due to the general lack of familiarity with the new system.

CBM-Net also connects local and international Myanmar-based lenders to the Central Bank, but not to other companies or banks outside of the country, said other Yangon-based bankers, who were all optimistic about the system’s potential.

“I think it’s going to make an immense difference to how things are done in six months’ time,” said the international banker. “For the next three to six months it will be back-and-forth as everyone gets used to it. But I’m very confident in the system. There’s been a great deal of money put into it and Japan has spent a long time on planning and local training.”

Source: Myanmar Times

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