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Economy

Myanmar lets foreign banks buy into local peers

Central bank permits stakes as large as 35% to boost liquidity for businesses

Myanmar is letting foreign interests invest in domestic banks with the aim of boosting capital for lending.
Myanmar is letting foreign interests invest in domestic banks with the aim of boosting capital for lending.   © Reuters

YANGON -- Myanmar's central bank will allow foreign banks to hold stakes of up to 35% in domestic banks, part of reforms to boost capital levels and activity in the financial sector.

The Central Bank of Myanmar issued a notice on the matter Tuesday. The aim is to provide Myanmar banks with access to funds to support growing financing demand from local businesses. The change is also expected to help upgrade loan-screening processes and modernize data systems.

Foreign investment was technically permitted under legislation that took effect last year, but any such deals face the hurdle of central bank approval.

The directive follows a mid-January notice freeing private-sector banks to extend loans without collateral. Previously, applicants would need to put up real estate or other assets to receive financing.

One insider in the banking sector warns that foreign interests may balk at investing in Myanmar banks because of a lack of financial disclosure. On the other hand, "there is a lot of room to expand lending clients, and banks raising more capital and investing it would probably translate to guaranteed growth in earnings," said the source.

A total of 13 foreign banks have opened branches in Myanmar since the sector was opened to foreign participation in 2013. Japan's three megabanks have each allied with local peers: MUFG Bank with Co-operative Bank, Sumitomo Mitsui Banking Corp. with Kanbawza Bank, and Mizuho Bank with Ayeyarwady Bank.

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