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Finance

Japanese banks win big in Myanmar

Myanmar hopes foreign banks will help modernize its financial sector.

BANGKOK -- After months of speculation, Myanmar on Oct. 1 awarded banking licenses to nine foreign financial institutions, including the three biggest Japanese banks and Australia and New Zealand Banking Group.

     The government's announcement followed more than five decades when the country was closed to foreign lenders. It marks a new phase in Myanmar's re-engagement with the international community, although the licenses strictly limit the scope of foreign banks' operations.

     The three Japanese banks -- Bank of Tokyo-Mitsubishi UFJ, Sumitomo Mitsui Banking Corp. and Mizuho Bank -- were among 25 applicants from 12 countries and regions vying for the licenses. The winners were chosen from a shortlist compiled by Roland Berger, a Germany-based consultant appointed to oversee the process.

     The five other successful applicants were: Thailand's Bangkok Bank; Industrial and Commercial Bank of China; Malaysia's Malayan Banking (Maybank); and Singapore's Oversea-Chinese Banking Corporation and United Overseas Bank.

     French, South Korean, Vietnamese and other Southeast Asian banks missed out despite intense lobbying, as did banks from India, Taiwan and Mauritius.

     The government's Foreign Bank Licensing Committee said its selection was based on "detailed quantitative and qualitative criteria." By awarding licenses to the Japanese trio, the government signaled its dual emphasis on facilitating foreign investment and assisting domestic banks. Singapore benefited from the strong relationship its banks forged with Myanmar over the decades it was shunned by the West and stymied by sanctions.

     "Myanmar has given a significant nod to Japan in the hope of favoring much greater Japanese investment," said Romain Caillaud, Myanmar director of Vriens & Partners, a Singapore-based consultancy. "Japan has been a large investor as Myanmar has opened its economy, but is still over-shadowed by (South) Korea, and by China and Thailand. The fact that Korean banks were shut out entirely is surprising given the size of Korea's stake in the country."

     Some local analysts saw the decision to award licenses to all three Japanese applicants as a tacit response to Tokyo's frustration over losing out on a series of lucrative Myanmar government contracts, including for telecommunications licenses and airport upgrades. Japan has forgiven billions of dollars of debt owed by Myanmar and has launched vast aid programs for the country since the reformist government of President Thein Sein came to power in early 2011.

     Japan's three megabanks are already helping to finance a growing stream of Japanese investment in Myanmar, including new factories, a special economic zone and oil and gas operations. It is understood that the institutions pledged various programs to assist local banks, including the provision of training and, in the case of BTMU, setting up an education institute for banking personnel.

Local nervousness

"BTMU has been in Myanmar for a long time, and we believe in the potential of this country," said Go Watanabe, the bank's chief executive for Asia and Oceania. "With BTMU's strength and expertise, especially in Asia, we want to play a bigger role in enhancing Myanmar's financial infrastructure, working in tandem with the local banks."

     The successful applicants can start foreign currency lending to foreign corporations and domestic banks, although they will be barred from retail banking and, will be able to lend in local currency, the kyat, only in partnership with local banks.

     Attracting foreign banks is a key part of the government's economic reform program. But the 10-month process has been dogged by fierce resistance from parliamentary and domestic business circles, with warnings that local banks could be wiped out by the competition. There are 25 domestic banks, four of them state-owned.

     U Set Aung, deputy governor of the Central Bank of Myanmar and a key proponent of liberalization, brushed aside criticism. "Is there any country which started allowing foreign banks to open branches only when it was absolutely ready?" he said, noting an urgent need for technical know-how and deeper liquidity. "Allowing foreign banks to operate -- in a form which would not pose a threat to local banks -- could result in a win-win-win situation for international and domestic banks and the country as a whole."

     While foreign investment is growing significantly in Myanmar, many investors have warned that the lack of proper banking facilities could be a hindrance. Myanmar in mid-September raised its forecast for foreign direct investment by 25% to more than $5 billion for the fiscal year to March 31, exceeding an earlier estimate of $4 billion. FDI flows in the first five months of this fiscal year came to $3.32 billion, according to official figures, more than half the government's target for the entire year and 113% above the same period a year earlier.

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