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Central Bank Issues Regulation to Avoid Large Risk Exposure

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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