The Central Bank of Myanmar (CBM) has issued a regulation in efforts to curb the risks faced by lenders when taking on large exposure loans.
The Large Exposure Regulation mandates that banks cannot lend beyond 20 percent of their core capital to any single borrower, thus minimizing the bank’s exposure should the borrower default.
“Capping credit exposure is an instrumental measure for strengthening the national banking sector. This regulation is in line with international standards as well as those set by the Basel Committee,” U Than Lwin, former vice chairman of CBM, told Myanmar Business Today.
The central bank has instructed that while there is no limit on secured transactions between banks, unsecured transactions are limited to 100 percent of the bank’s core capital. The CBM added that branches of foreign bank are also subject to this exposure limit.
Under the new regulation, each quarter banks will need to report all large exposure transactions to the Banking Supervision Department of the Central Bank of Myanmar.
On the same day, CBM issued three other regulations regarding Asset Classification and Provisioning, Capital Adequacy, and Liquidity Ratio.
U Than Lwin, currently a senior advisor of KBZ bank, remarked, “This is an attempt by the Central Bank to encourage lenders to engage in syndicated-loans. A joint effort by lending institutions, whether local or international, will help spread out the risk.”
If a bank currently has any financial exposure exceeding 20 percent of the core capital, they must report it to the Banking Supervision Department of the CBM so that the risk can be effectively minimised in under 90 days.
Source: Myanmar Business Today
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