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Opportunities and Challenges of

Myanmar: Leading to National


Development
(Banking Sector)
U Aung Tun Win
Deputy Director
Central Bank of
Myanmar

01/09/17

Overview of Foreign Banking in


Myanmar
Entry of Foreign Bank Branches
Despite having a vibrant banking sector with 14 foreign banks
before 1963, the nationalization of all banks in that year and almost
five decades of poor management by the previous governments
have stifled the development of the banking sector in Myanmar.
In July 2013, the Central Bank of Myanmar Law was passed,
resulting in the formation of an autonomous Central Bank.
13 foreign banks were given licenses to open representative offices
during 1993 to 2010. Since 2011, the new civilian government has
given 30 additional licenses, increasing the number of total
representative offices of foreign banks to 43 at the end of 2014.
In 2015 April, the Foreign Bank Licensing Committee (FBLC) under
Central Bank of Myanmar awarded preliminary approvals to 9
foreign banks to open branches.
In 2016 July, four more foreign banks were granted licenses to open
branches.
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Table (1) Foreign Bank Branches in Myanmar (As of


October 2016)

Sr
No.

Bank Name

1.

The Bank of Tokyo-Mitsubishi UFJ (BTMU)

2.

Oversea-Chinese Banking Corporation (OCBC)

3.

Sumitomo Mitsui Banking Corporation (SMBC)

4.
5.

United Overseas Bank (UOB)


Bangkok Bank (BKK)

6.

Industrial and Commercial Bank of China (ICBC)

7.

Malayan Banking Berhad (Maybank)

8.

Mizuho Bank
Australia and New Zeland Banking Group
Limited (ANZ)

9.
10.

The Joint Stock Commercial Bank for Investment


and Development of Vietnam (BIDV)

11. Shinhan Bank


12. E.Sun Commercial Bank
13. State Bank of India

Home Country

Date of License
Issued

Date of business
Commencement

Japan

2-4-2015

22-4-2015

2-4-2015

23-4-2015

Japan

2-4-2015

23-4-2015

Singapore
Thailand

30-4-2015
26-5-2015

4-5-2015
2-6-2015

China

26-5-2015

1-7-2015

Malaysia

27-7-2015

3-8-2015

Japan

27-7-2015

3-8-2015

Australia

29-9-2015

2-10-2015

Vietnam

30-6-2016

1-7-2016

India
Taiwan
India

15-9-2016

20-9-201

Singapore

Source: CBM
01/09/17

Regulatory and Supervisory Framework


of Foreign Banking in Myanmar
Each foreign bank branch requires a minimum (paid-in)
assigned capital of US$75 million, of which US$40million is to
be deposited at the CBM.
Their services are limited to wholesale banking and lending to
foreign investment companies and local banks.
They are restricted from providing retail banking and lending
directly to Myanmar citizens in Myanmar kyat.
Also, to lend to local companies, they have to work via or
together with Myanmar banks.
They are allowed operating as a branch with one place of
business which is permitted to serve only foreign
corporations and domestic banks and that will take deposits
and extend loans in both foreign currency and Myanmar Kyat.
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Scope of Operations of Foreign Bank Branches


Corporate cash management products, including liquidity
management, domestic and international payments, collection
and remittances, corporate accounts and online banking
services;
Interest bearing deposits (current account & term account) in
USD and EUR;
Loans in Kyat and USD;
Syndicated loans with any domestic or foreign banks
Correspondent banking
Structured finance (e.g. Acquisition finance, asset finance,
project finance)
Trade finance services, using any international currencies
Foreign exchange business, in any international currencies
FX and interest rate derivatives (CBM, 2014)

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Challenges to CBM

The regulatory framework governing banks and the supervisory


capacity of the CBM require modernization, including those
associated with the management of risks of modern banking
operations.

In 2016, the CBM has enacted the Banks and Financial Institutions
Law (BFIL) which is the basis for upgrading prudential regulations
further.

Nevertheless, the regulatory environment will be in a state of


transition for years to come and the authorities will face a
constant challenge to improve the regulatory environment.

At the same time, the CBM faces a steep learning curve to move
from compliance-based to risk-based bank supervision.

As the CBM only has a limited number of experienced bank


supervisors, it will take years and considerable effort to develop a
strong capacity to conduct on-site and off-site examinations to
globally recognized standards.

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Current macroeconomic policy settings are adding to the


challenge of maintaining financial stability in the face of foreign
bank entry.

Loose financial conditions as a result of expansionary monetary


and fiscal policies have led to rapid credit growth over the past
three years.

Although foreign banks are not allowed to lend directly to


domestic firms at the moment, their lending to domestic banks
could give another impetus to domestic credit expansion.

At the same time, domestic constraints on raising capital and


mobilizing funding make offshore borrowing more attractive to
domestic banks and firms, particularly given the relatively high
nominal interest rates with rising inflation.

To manage these risks Myanmar needs to maintain capital controls


to mitigate risks associated with volatile capital flows as the
financial and corporate sector only has a weak capacity to
manage such volatility.

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Table (3) State-Owned Banks


Sr.No

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Name of Bank

Myanmar Economic Bank

Myanmar Foreign Trade Bank

Myanmar Investment and Commercial Bank

Myanmar Agricultural Development Bank

Table (4) Semi-Government Banks


Sr.No

Name of Bank

Date of License
Issued

Myanmar Citizens Bank

25.5.1992

Co-operative Bank

3.8.1992

Yadanarbon Bank

27.8.1992

Myawaddy Bank

1.1.1993

Yangon City Bank

19.3.1993

Small and Medium Industrial Development Bank

12.1.1996

Rural Development Bank

26.6.1996

Innwa Bank

15.5.1997

Myanmar Microfinance Bank

2.7.2013

10

Construction and Housing Development Bank

12.7.2013

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Table (5) Private Banks


Sr.No

01/09/17

Name of Bank

License Issued

First Private Bank

25.5.1992

Yoma Bank

26.7.1993

Myanmar Oriental Bank

26.7.1993

Asia Yangon Bank

17.3.1994

Tun Foundation Bank

8.6.1994

Kanbawza Bank

8.6.1994

Global Treasure Bank

9.2.1996

Asia Green Development Bank

2.7.2010

Ayeyarwaddy Bank

2.7.2010

10

United Amara Bank

2.7.2010

11

Myanmar Apex Bank

2.7.2010

12

Naypitaw Sibin Bank

28.2.2013

13

Shwe Rural & Urban Development Bank

28-7-2014

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Ayeyarwaddy Farmers Development Bank

17-11-2015

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The Failure Experience of Turkey


Turkey is one of the first implementation of the financial
liberalization reform and opening up its banking industry country
in emerging countries.
However, it is almost failure in nearly two decades of financial
reform and opening up.
There are a lot of reasons for Turkey's failure.
Firstly, the banking market does not fully open, and there are still
many non-regulatory and structural barriers.
Although the Turkish government has reduced entrance barriers of
the banking industry, there are lots of constraints in business and
geographical distribution.
Foreign banks did not really get national treatment, which means
that they cannot compete with the local banks equally.
In addition, the banking industry is highly concentrated and hardly
to form an effective competitive environment.
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On the one hand, Turkey's state-owned banks are protected its


monopolization by the government.

By the end of 1996, the total assets of five state-owned


commercial banks accounted for 40.7% in the total assets of 56
banks, and their deposit balance accounted for 44.1%. Stateowned banks are still in a dominant position.

On the other hand, Turkey's private banks have also formed a


monopoly power.

By the end of 1998, the total assets held by Turkey's four


largest private banks accounted for nearly half of the total
assets of all private banks and more than a quarter of all
banks.

All of these financial institutions with monopoly power have


close relationship with enterprises and government, which
block or weaken the power of the new market entrants.
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The relationship between the government and banks are


too close.

Besides, banks colluded with the relevant government


departments and officials to obtain benefits.

All these abnormal relations are not only distort the


competition environment, but also lead to the banking nonperforming assets.

There was also lack of supervision of the central bank and


absent of efficient supervision of violation operation of
commercial banks as well.

It is quite similar that the officers of commercial banks


misappropriate the funds into real estate and stock market
and the government just uses the approach of financial
support instead of straightening out or requiring quitting
(Hermes, 2010).

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The Success Experience of Singapore


Since the 1970s Singapore is becoming a regional financial
center and has success in absorbing more than 100 foreign
banks.
After 1997, the Singapore government adopted a series of
financial reform measures in order to eliminate the enormous
impact of the financial crisis.
In May, 1999, Singapore Monetary Authority offered to open up
the banking industry which is marking the implementation of
banking reform.
The opening up of the banking sector has achieved remarkable
results in Singapore.
Offshore financial services was rapidly developed and Singapore
has become the international financial center of the world.
The rapid development of the financial sector led a sustained and
steady economic growth and Singapore has finally joined into
developed countries.
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The Singapore government gave special attention to


effectively protect the local banks through the selective
introduction of foreign banks and other operational
constraints to give a chance for local banks.

First of all, only the foreign banks with excellent reputation


and rich experiences can enter into the Singapore financial
market.

These advanced foreign banks can bring senior management


personnel and professional knowledge as well which can be
imitated and learned from.

Secondly, different banks can get different license that both


introduce foreign banks and restrict them.

The Singapore government encourages local banks to merge


and reform in order to enhance their competitiveness and
take the initiative to meet the challenge of foreign banks. In
20 years, local banks in Singapore have developed rapidly.

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Finally, after the improvement of local banks, open-door policy


of banking industry came out and supported by domestic
banks.
The norms of risk management contribute to the success
either. The commercial banks in Singapore have implemented
a strict management in proportion of assets and liabilities and
assets risk management in order to improve the operational
efficiency.
Thirdly, there is an effective financial supervision.
In sum, the high level of financial regulation has created an
effective operating mechanism for the banking industry and it
is the main reason for Singapores success.
The commercial banks do business in accordance with
international usage and the local laws and regulations and
strengthen the risk management according to the principles of
safety, liquidity and profitability (Zhao, 2009).
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Impact of Foreign Bank


Entry on Banking Industry
In Myanmar
Banking Competition
Financial Development
Financial Stability

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1. Banking Competition

There are many positive and negative influences of foreign


banks entry on the domestic banking industries through
competitions.

The positive impacts include:


increase of banking sector capitalization
increase efficiency of existing financial service

The negative impact includes:


decreasing interest rate and profit in domestic banks
migration of outstanding financial professionals from
domestic banks to foreign banks and
higher cost of domestic banks

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2. Financial Development

Foreign bank presence leads to positive spill-over effects


which contribute to more efficient domestic banking
practices.

The positive impacts of foreign bank entry in domestic


banking market include:
introduction of modern and efficient banking technique,
introduction of high profit and high tech products,
improvements of bank regulation and supervision and
increasing the quality of human capital by learning from
the practices of foreign bankers
Broadening of financial service networks

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3. Financial Stability
Foreign banks presence has negative impact for
financial stability such as
increasing the risk of financial markets,
increase of foreign exchange rate and etc.

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The financial market in Myanmar is at the early stage of


development and not mature yet.

As a result of the imperfect of Myanmar financial market


regulatory system and management mechanism, the ability
of fend off financial risks is still weak, therefore, it will
increase the risk.

Moreover, when foreign banks find it is difficult to resolve


the difficulties in the development in Myanmar, they may
withdraw out of Myanmar market immediately, which will
further exacerbate Myanmar financial market risks.

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The other points leading to financial instability are :

Rapid entry of foreign banks when supervisory capacity is


low.

Contradiction between the interests of foreign banks and the


host country. Foreign banks may be interested solely in
promoting their compatriot exporters or in providing services
to the projects carried out by the customers from their home
country.

Differences between the home and the host countries


regulations. The home countrys authorities lose their
regulatory control over the foreign banks branch abroad.
Therefore, if the banking sectors regulations in the host
country are weaker and less efficient, foreign banks might
engage in riskier and more negligent operations.

Danger of financial crises in foreign banks home countries


spilling over into the host countries

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Increase of foreign exchange rate


Foreign
banking
services
services

banks entrance brings mature financial products to


industries in Myanmar. The introduction of these
stimulates domestic banks to also develop such new
by copying.

But, since Myanmar is at the early stage of banking operation,


some introduced banking products are not appropriate and
leading to financial instability.
For example, one of the recent financial products copied from
foreign bank is Call Deposit in which the interest rate is given
for each day of deposit.
In this case people deposits their money on Friday and
withdraws on Monday in order to get the interest for Saturday
and Sunday when there are no commercial activities.
This leads to the reduction of interest rate for call deposit by
banks.
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Since the interest rate decrease, people do not want to


deposit in banks anymore and buy the foreign exchange as
an investment.

Therefore foreign exchange has high demand, and foreign


exchange rate increases and lead to financial instability.

Finally, there are also other causes for the increase of


foreign exchange rate after the entry of foreign banks.

After the opening of foreign banks foreign exchange


demand become high for infrastructure and payments of
these foreign banks.

As the result, US dollar exchange rate has increased


significantly after the entry of foreign banks.

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Table (15) USD Exchange Rate Before and


After the Entry of Foreign Banks
USD Exchange Rate Before the Entry

USD Exchange Rate After the Entry

of Foreign Banks (MMK)

of Foreign Banks (MMK)

(FY 2014 2015)

(FY 2014 2015)

April

965

1094

May

968

1141

June

981

1270

July

976

1280

August

973

1305

September

995

1298

October

1012

1292

November

1080

1305

December

1055

1312

January

1040

1310

February

1044

1291

1089

1239

Month

01/09/17
Source: CBM
March

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Findings
There are many positive and negative influences of foreign
banks entrance on the domestic banking industry. The
positive and negative impacts are summarized as follows.
The positive impacts include
Increase in the countrys banking sectors capitalization
Increase in the host countrys banking sectors efficiency
due to the import of new banking technologies, products
and management techniques.
Increase in bank competition.
broadening of financial service networks by establishing
new branches, ATMs and POSs.
Financial markets development.
Improvement of the financial sectors infrastructure due to
the import of the banks experience of rendering high
quality services, the banks know-how, accounting
practices, etc.
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The negative impacts include:


Reduction in interest rate, profitability of domestically owned
banks.
Decrease in the countrys banking sectors stability
Migration of outstanding financial
domestic banks to foreign banks

professionals

from

Increase cost of domestic banks.


Contradiction between the interests of foreign banks and the
host country.
Differences between the home and the host countries
regulations.
Danger of financial crises in foreign banks home countries
spilling over into the host countries
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Recommendations

In this study, it was found that the foreign banks in


Singapore are more successful than the ones in Turkey.

Singapores success is mostly attributed to the gradual


open up policy of its domestic banking sector.

The advantage of this policy is that it gives time for the


domestic banks to absorb the advantages in both local
banks and foreign banks.

The successful experience of Singapores banking sector


can be draw by Myanmar, although the development of
foreign banks in Myanmar has its own characteristics.

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The speed of foreign bank entry has important implications


for financial stability, which is an important consideration
for Myanmar in managing the risks.

Hence, specific considerations need to be given to


Myanmars context in designing an appropriate policy
framework, and policy options.
The following goals should be set and implement.
Better access to financial services.
A safer and more stable financial system
Stronger regulatory capacity and framework
Developed financial markets
Locally owned banks should be an important and strong
component of the banking system

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The goals can be achieved by:


Managing competition risks
Continuing to strengthen legal, regulatory and macro
policy frameworks
Mitigating cross-border contagion risks
Strengthening the rule of law and transparency
arrangements

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Conclusions
The entry of foreign banks in Myanmar has the potential to bring large
benefits to the country, but the rapid pace of entry also poses
challenges to maintaining financial stability.
The entry of the foreign banks provides an unprecedented opportunity
to develop a modern banking sector through introduction of new
financial products and risk management techniques, and lending by
foreign banks could become an important source of funding for private
sector development.
This requires a sound regulatory framework and strong capacity of
supervision.
Consolidation of the banking sector is likely necessary but this process
should occur in a way that does not lead to a loss in confidence or
financial stability.
Domestic banks should seriously learn from the comparative
advantages of foreign banks and exert their own advantages in order
to promote the development of Myanmar's banking industry, so as to
service for Myanmar's economic development.
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Thank You

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