ADB moves in Myanmar as trade finance hopes grow

Hopes of opening the Myanmar trade finance sector are growing, after the Asian Development Bank (ADB) issued its first guarantee in the country.

As part of its Trade Finance Programme (TFP), the ADB guaranteed a letter of credit issued by Banca Popolare di Sondrio of Italy to local lender United Amara Bank (UAB), one of Myanmar’s signatories to the TFP.

This will help finance a local fertiliser importer, which will sell to local farmers. It is, the ADB says, a deal that will stimulate growth both in physical crops and Myanmar’s agricultural exports sector.

“Myanmar is an exciting market with great potential, We’re pleased to work hand-in-hand with UAB and our international partner banks to harness Myanmar’s trade growth potential and especially to help SMEs in developing member countries. Trade growth creates new jobs and increases incomes, and is one of TFP’s main objectives,” says Janet Hyde, who heads the TFP’s work in Myanmar.

The ADB follows the China-backed Asian Infrastructure Investment Bank (AIIB) into Myanmar, considered one of Asia’s frontier markets. Last year, the AIIB lent US$20mn to the Myingyan gas-fired power plant project.

However, commercial investment in the country’s trade finance market has been scant, largely due to uncertainty over sanctions rules and government legislation restricting the lending international banks can do.

In December 2015, US authorities removed a ban on trade through ports and airports in Myanmar for six months, a move which should have helped galvanise the country’s incoming government. The ban was subsequently extended indefinitely.

This happened after banks including Citi, Bank of America, HSBC and PNC Financial withdrew from financing trade in Myanmar, after discovering that the Asia World port in Yangon was run by Steven Law, who has alleged ties to the military and illicit narcotics and who has been sanctioned since 2008.

At the moment, any trade or projects financed by international banks in Myanmar is done offshore. In an interview with the Corporate Treasurer this week, however, Khaing Thandar Nyunt, an assistant director at the Central Bank of Myanmar said the country was looking at ways of opening the domestic sector up to foreign banks.

“Currently, our local banks are not that strong and able to compete with foreign banks’ services. Our government would like to encourage the export sector, so they are trying to find a way for foreign banks to support that,” he said.

Over the course of 2015 and 2016, 13 banks were awarded licences to operate in Myanmar, on the condition that they would invest US$75mn in the local economy.

Most banks, however, are giving Myanmar and its regulatory minefield a wide berth until further clarification on international sanctions and local laws is available. The onus will be on development finance institutions to lead the way.

Speaking to GTR recently about the IFC’s efforts in the country, microfinance specialist at the World Bank Group member Julie Fawn Earnes said: “The IFC is also working with key banking clients in Myanmar to strengthen their operations in the areas of responsible finance and SME banking. It will be important for collateral requirements to be reduced and for banks to have the ability to price loans on the basis of risk in order for the banking sector to increase lending to SMEs.”

She added: “In terms of trade finance, Myanmar is an important opening market for the IFC. The IFC has two trade lines with Yoma Bank and MOB Bank, each of US$5mn. Trade is a critical driver of economic growth and job creation.”

Source: Global Trade Review

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