Central Bank allows foreign banks to lend to local businesses (Myanmar)

2018.11.13 10:04:41

If foreign currency flows from foreign banks to local businesses, this will help solve the high demand for dollars in the local economy. (The Myanmar Times)이미지 확대

If foreign currency flows from foreign banks to local businesses, this will help solve the high demand for dollars in the local economy. (The Myanmar Times)

Foreign banks in Myanmar are being allowed to provide commercial services, setting them on more equal footing with the local banks as the sector implements further reforms, U Soe Thein, Vice Governor of Central Bank of Myanmar (CBM), told The Myanmar Times on November 9.

"Financing and lending to local businessesis is now open to all foreign bank branches. As technical matters are involved, further clarifications and details will be released," he said.

According to Notification No. 6/2018 dated November 8, all branches of foreign banks have been given the right to provide financing and other banking services to local businesses.

While applauding the move, officials from local banks said the CBM should elaborate on what constitutes "other banking services".

On the face of it, "the decision is a good one for local banks. But we need to study the details, especially the interest rates. If foreign banks are allowed to offer more flexible rate options while local banks remain restricted, it will not be a fair playing field," said U Than Lwin, adviser to KBZ Bank and former vice governor of the CBM.

Businesses welcomed the move, which comes after the CBM allowed foreign banks to provide export financing last December 8, followed by banking services related to the provision of export financing earlier this year.

Before the recent announcement, foreign banks were limited to lending only to foreign entities in foreign currencies. There are now branches of 13 international banks from China, Japan, Singapore, India, Malaysia and Vietnam listed with the CBM, while 49 other banks have representative offices here.

The CBM`s decision also comes at a time when the US dollar is expected to rise further in value against the Myanmar kyat with the US Federal Reserve widely expected to raise interest rates in the coming quarters.

"If foreign currency flows from foreign banks to local businesses, this will help solve the high demand for dollars in the local economy and stabilise the exchange rate. That could be another reason why the CBM has decided to approve the foreign banks now," U Than Lwin said. The exchange rate was around K1580 against the dollar on November 9.

While further details are still forthcoming from the CBM, the move could spur more competition and yield growth opportunities in the banking sector at a time when demand for credit is expected to rise. For example, several local banks have already started to provide mortgage loans to finance housing investments, which could potentially be a fast-growing market.

According to the ASEAN+3 Macroeconomic Research Office (AMRO), the banking sector also stands to gain from lending more to the manufacturing sector. Due to a restriction on loan terms, credit to the private sector has mainly gone to agriculture, trade and service activities, which accounted for 59pc of total outstanding loans as of October 2017, while loans to manufacturing accounted for just 10pc.

On the flipside, rapid growth in credit has led to deterioration in bank asset quality and profitability, with non-performing loans (NPL) on the rise over the past four years.

The banking sector is now also adjusting to a stricter regulatory regime. Since the central bank announced new prudential regulations for the sector last July, credit growth has slowed to 23.4 pc in March from 33.5pc one year ago, according to AMRO.

Local businessmen warn that the benefits from foreign banks entering the playing field could still take a while to manifest in the economy.

"When extending a loan, foreign banks will require data on collaterals, tax records and credit history. Most businesses in Myanmar are still weak in those aspects and I think we need a transition period to overcome them before we are able to enjoy the benefits of this development," said U Ngwe Tun, founder of local coffee franchise Genius Coffee.

As there is no credit bureau and supporting technological infrastructure, even the local banks are having trouble overcoming these issues, he added.

As a whole though, the CBM`s move is a net positive for the economy. "If interest rates become more competitive and sufficient loans are given out, business will be much more convenient. Calls have been made for such an environment for a long time," said U Nay Lin Zin, a local trader.

"Local businesses will find ways to overcome difficulties in providing documents required by the foreign banks. If they know there will be no financing unless they have such documents, they will surely try to have them. The main move of permitting greater access to funds is a great help."


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