BANGKOK -- Myanmar has given preliminary operating licenses to four more foreign banks, following the government's decision in late 2014 to grant licenses to an initial nine foreign banks. The move -- just before a new administration led by Aung San Suu Kyi takes over on April 1 -- highlights a rush by the incumbent administration of President Thein Sein to push through commercial contracts and key decisions in the final weeks of his five-year term. It also reflects continuing strong interest among foreign banks in Myanmar's nascent market for banking and financial services.
The country's first stock market is set to begin trading stocks by the end of March -- albeit with the listing of just one Myanmar company, First Myanmar Investment. A gold and metals exchange is planned for later this year. The insurance and telecommunications sectors are among those set for further liberalization and foreign investment. And new laws recently passed by parliament or being drafted will introduce further reforms to investment, tax, markets and financial regulation.
In the latest bank licensing contest, a total of 13 banks -- eight of them Taiwan-based -- applied for entry, according to an official at the Central Bank of Myanmar. The tender excluded banks from countries that gained licenses in 2014: Australia, Japan, Malaysia, China, Singapore, and Thailand. The four banks to gain the new licenses are: Bank for Investment and Development of Vietnam; State Bank of India; E.SUN Commercial Bank of Taiwan; and Shinhan Bank of South Korea, according to the government's Foreign Bank Licensing Committee in a March 4 statement that was circulated one day later.
As with the first wave of banking licenses, the four successful banks have been given provisional, or "operational," licenses to set up wholesale operations to deal mainly with foreign corporate clients, and are each required to bring in at least $75 million of capital. This gives them 12 months to fulfill business plans laid out in their applications before they can gain permanent licenses, the statement said. The new licenses also feature restrictions similar to the initial wave of licenses, limiting the foreign banks to one branch each, and confining their operations to wholesale -- or corporate -- business rather than retail banking. The foreign banks are permitted to lend only in foreign currency, not in Myanmar kyat, unless they partner with a local bank.
Too much too soon?
The latest round of licenses highlights the government's push to consolidate its earlier reforms, and its belief that the country is ready for more foreign banks, -- despite earlier concerns voiced by domestic banks, which feared international competition, and the International Monetary Fund, which advised the government in 2014 to initially admit just five or less foreign banks. In late 2015, the IMF warned of "increasing vulnerabilities" in Myanmar's banking system due to rapid credit growth, a widening current account deficit, and an expansionary budget. These factors, the fund said, posed "increasing risks to price and external stability."
In a Sept. 18 statement after its annual Article IV Consultation with Myanmar, the IMF said the admittance of more foreign banks also carried risks, as the central bank's "regulatory and supervisory capacity is still relatively weak." Some critics -- including several Yangon-based economic analysts -- voiced additional concerns. "For one thing we are still waiting on key bits of financial architecture to fall in place," said one Western diplomat who monitors Myanmar's economy. New financial regulations are still to emerge after the January passage by parliament of a long-delayed law on financial institutions, and the central bank is planning further liberalization to allow privately owned banks more scope with financial products and services. The central bank is also moving to reform the interbank foreign exchange market, not least to iron out problems with the setting of exchange rates, and to tackle corporate complaints about curbs on access to foreign currency.
The incoming administration could also hold starkly different views from the outgoing government on financial liberalization. Key advisors to Suu Kyi, who led her National League for Democracy to a sweeping victory in the Nov. 8 national election, have publicly called for more focus on strengthening grassroots finance operations and local banks to boost credit to small and medium sized companies. Suu Kyi is barred from the presidency due to constitutional restrictions but has stated she will lead the administration. Although she rarely comments on banking and financial matters, her advisors in this field are known to favor a "bottom up" approach to economic development, which could well extend to banking and finance policies and is unlikely to emphasize foreign banks.
Myanmar has 24 local private banks and four state-owned banks. Executives from some foreign banks that won licenses in 2014 said that business had been slow to gear up -- although all nine now have fully operational branches -- and is still confined largely to dealing with foreign clients, mainly multinationals from their home countries and some large local companies with offshore banking needs.
The nine foreign banks that won the first licenses in 2014 are: Australia's ANZ Banking Group Ltd., Thailand's Bangkok Bank; the banking units of Japan's three largest banks -- Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group and Mizuho Financial Group; Industrial and Commercial Bank of China; Malayan Banking (Maybank); and two Singapore banks -- United Overseas Bank and Oversea-Chinese Banking Corp.