In the recent past, Myanmar’s banks operated like giant pawnshops, with a ‘gold or land for cash’ approach that saw plenty of missed repayment dates.
But the Central Bank of Myanmar (CBM) has tried to improve the situation by encouraging banks to offer smaller loans and providing a stricter framework for them.
Now a series of reforms has opened the doors to foreign business and placed the clunky sector on the brink of joining the rest of the world. For a cash-starved economy desperate for development, this could not have come sooner.
In a March 2017 Bloomberg report, for example, Kanbawza (KBZ) Bank, the country’s largest private bank, put its total assets at US$8 billion. Compare that to Thailand’s fourth largest commercial bank, Kasikornbank, whose total assets of $92.7 billion in 2017 could theoretically buy all of Myanmar’s top banks combined!
That is all set to change thanks to the CBM easing restrictions on foreign banks, first allowing them to provide export financing in late 2017 and then last November giving them the green light to lend to local businesses.
Before then, foreign banks could only lend to foreign firms in foreign currencies. Time to embrace the foreign and help the economy develop! Which is what the CMB did again on January 29 when it announced that foreign banks could now hold up to 35% stake in Myanmar’s financial establishments.
The CBM confirmed a 13 percent cap on kyat-denominated loan interest rates would persist—a contentious point for some local banks who highlight their foreign counterparts are free to set interest rates as they choose in USD.
But the boost of foreign investment to local banks makes sense for so many reasons. It’s a huge and quick injection of cash into the market that will quickly modernize loan screening. And foreign banks can buy into a domestic network of banking infrastructure instead of building it.
Partnerships between major international banks and local banks are likely to be announced soon. But with the CBM tightening the bolts and opening the doors to foreign players, there must be one question niggling the boardrooms of some local banks: who will be left standing?
