Welcome mat for foreign banks a positive step

Welcome mat for foreign banks a positive step

Myanmar's move last week to award licences to nine foreign banks has won praise from analysts, who see it as a major step toward liberalising the country's rigid financial sector and paving the way for more foreign direct investment.

Japan's biggest lenders — Bank of Tokyo-Mitsubishi UFJ Ltd, Sumitomo Mitsui Banking Corp and Mizuho Bank Ltd — were among the winners of limited banking licences in the once-isolated country.

The other winners included Bangkok Bank (BBL), Thailand's largest lender by assets, Industrial and Commercial Bank of China, Malayan Banking Berhad (Maybank) of Malaysia, Australia and New Zealand Banking Group Ltd (ANZ), and two Singapore lenders — Oversea Chinese Banking Corp and United Overseas Bank (UOB) — according to an official statement released by the Central Bank of Myanmar.

Under the terms of the long-awaited announcement, the banks now have up to 12 months to prepare to open their branches in the country.

The lenders are among a host of foreign companies seeking to gain a foothold in Myanmar as it reconnects with the global economy following 50 years of military rule. The World Bank projected that Myanmar's economy would grow by 7.8% this year, well above the 4.8% average predicted for developing nations.

Around 40 international banks with representative offices in Myanmar were eligible to bid for the nine licences on offer. Twenty-five banks applied including three others from Thailand: Krungthai Bank (KTB), Siam Commercial Bank (SCB) and Kasikornbank (KBank).

Central Bank of Myanmar chairman Kyaw Kyaw Maung told reporters in Nay Pyi Taw, the country's capital, that the selection committee had chosen foreign banks that "can support market development in Myanmar".

Licence winners are required to have minimum capital of US$75 million for an initial single branch. Preliminary approval is valid for 12 months, during which the winners must take all necessary measures to ensure functional banking operations from day one of business. After they meet the initial requirements, the central bank said it would grant them the final licence.

Foreign banks will be limited to one branch each, won't be permitted to operate a retail-banking business, and will be allowed to lend only in foreign currency, and not in the kyat, Myanmar's currency, unless they partner with a local bank.

Even with the initial restrictions, analysts said the central bank's decision was expected to greatly improve access to capital in Myanmar, one of the key hurdles for foreign companies investing there.

"Taking into consideration where the banking industry of the country stands right now, even the current partial opening of the sector to international banks is a major development," said Sardor Koshnazarov, managing director of Silk Road Finance, an investment firm that focuses on frontier markets.

The foreign banks will be allowed to lend to local institutions, which is expected to encourage domestic banks to improve their operations and cut down on corruption.

The tight restrictions are aimed a giving local banks time to grow, but some analysts said local businessmen, in dire need of capital, would benefit from foreign lenders. "They have no opportunity to engage and finance local entrepreneurs," said Sean Turnell, an expert on the Myanmar economy at Australia's Macquarie University.

Andrew Geczy, chief executive for international and institutional banking with ANZ, said foreign banks were expected to be active in institutional banking in order to facilitate the entry of foreign investors to Myanmar.

For ANZ, he said, winning the licence was part of the bank's effort to expand its Asian business. It plans to serve big multinational companies that operate in the country.

"Our focus is really going to be on serving foreign multinationals and assisting the local financial institutions locally in their activities," Geczy said. "The banking regulator did not really want to have a group that was competing on retail banking."

Australia's third-largest lender opened a representative office in Yangon last year as it expands in emerging nations that are growing faster than its home market.

Wee Ee Cheong, deputy chairman and group chief executive of UOB Group, said the Singaporean bank had always taken a long-term approach to building and deepening relationships with Myanmar and supporting the continued development of the country's financial sector.

"The licence will allow us to participate in Myanmar's economic development by deepening our onshore banking relationships," he said in a statement. "We hope to work even more closely with the Central Bank of Myanmar local banks to provide financial solutions for the banking community and multinational companies that invest in the country."

Many local banks have opposed the granting of licences, worrying that allowing foreign banks to operate in the country would erode their market share.

"Foreign banks are giants, but we are still very small," said Sein Maung, chairman of Myanmar First Private Bank and vice-chairman of the Myanmar Banking Association. "We are not ready to compete with them, not in terms of technology or experience."

Among the licence winners, China's ICBC ranks first in terms of assets at $239 billion, followed by ANZ at $84 billion and UOB at $29.7 billion.

Bangkok Bank, established in 1944, had total assets as of March 31 this year of $75 billion with 1,150 domestic branches and an international network of 27 branches and one representative office in 13 markets.

According to the Myanmar Investment Commission, foreign direct investment (FDI) has risen rapidly in the country, from $300 million in fiscal 2011-12 to $1.3 billion the following year, and to $3.5 billion in fiscal 2013-14. Under the previous military government, FDI totalled $234.9 million in 2005 and rose to $1.08 billion in 2009

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