The opening of Myanmar’s economy has many investors excited. They are intrigued about accessing a country that has 53 million people and substantial natural resources, yet lacks basic goods and services taken for granted by neighbours.
To invest, these companies need to enter via the local financial market. Unfortunately Myanmar is, by any standard, badly under-banked.
The country has less than 1,000 branches. Thailand, with 67 million people, has 6,744 commercial bank branches. Myanmar lacks a credit bureau, a money market or an interbank market.
“Currently a company accountant has to spend an inordinate amount of time going to a branch to move money, and in some cases where a cheque needs an authorisation letter from one bank to another,” Peter Witton, director for director of Yangon-based investment company Anthem Asia, told FinanceAsia.
Worst of all, the banks lack the faith of their customers. “This is still very much a cash economy,” Nick Freeman, a consultant with private equity firm Myanmar Capital Partners, told FinanceAsia.
Observers say that city workers only use bank accounts to receive their salaries. “Then they take the money out and stuff it under their mattress,” quipped an expatriate executive.
Reforms are coming. The Central Bank of Myanmar gave nine foreign lenders onshore licences in October 2015, and it has also just launched an electronic settlement system.
But the government and central bank need far faster reforms, and more trained financial professionals, if they are to both entice and manage the flow of capital into the country’s economy.
Troubled background
Mistrust of Myanmar’s banks stems from a crisis back in 2003. Early that year several informal financial organisations collapsed due to risky investment schemes, which led to rumours about the health of private banks, and then a bank run. The MCB imposed heavy restrictions on individual withdrawals, while some banks demanded that borrowers repay up to 50% of loans within days. Confidence in the banks crashed; several collapsed.
To compound these low levels of trust, powerful tycoons own most of the large banks via conglomerates. Some, such as Asia Green Development Bank founder Tay Za, reside on the US’s sanctions list.
There have been reforms in recent years. Credit cards have been introduced, along with ATMs. But local lenders can only offer basic, collateral-backed loans. And bank branches only open from 9.30am to 3pm, Monday to Friday – just when most professionals are working.
“Effectively you have to choose between having a job and being able to access your bank account,” Hal Bosher, chief executive officer of Yoma Bank, told FinanceAsia.
The central bank also caps bank deposit interest rates at 8%, while lending rates have to be 10% to 13%, at a time when inflation is close to 10%. Most banks are reluctant to lend to smaller businesses.
Central bank conservatism
The responsibility for modernising the sector primarily lies with the Central Bank of Myanmar (CBM).
Financial executives widely regard Kyaw Kyaw Maung, the 76-year old governor, to be very conservative, while most senior executives are former military officers, not experienced banking professionals. Outsiders most admire deputy governor Set Aung, a western-educated former economist, who is seen as the architect of reforms such as the foreign bank licences.
Bankers and company executives hope the incoming government will shake up the CBM, encouraging it to replace bureaucrats with technocrats. The existing military-backed government was soundly thrashed by the National League for Democracy in a national election on November 8, which will form a new government at the end of March.
Rajesh Ahuja, country head for ANZ Bank, one of the nine foreign banks to get a bank licence, told FinanceAsia the CBM cooperates well with international agencies, but added: “I’d like to see a lot more capacity in the CBM in terms of representatives who are well trained and can execute their roles effectively.”
The hope is such professionals see the merits of rate liberalisation, non-recourse lending, FX derivatives, and less draconian oversight of import and export revenues. In fairness the CBM is planning a credit bureau for later this year ,and indicated it could float lending rates, although only for US dollar loans initially.
Evolving banking
The CBM also finally launched a new real time gross settlement (RTGS) system, called CBM-Net, on January 6.
The system allows real time online settlement for local and foreign banks in Myanmar, making it easier for customers to move local currency funds between them. Previously banks manually submitted daily statements on transfers and clearances to the central bank.
“This is a real leapfrog from the previous paper-based manual settlement system,” said Ahuja. “Volumes on this new payment system are expected to increase significantly in coming months.”
It’s not before time. When asked what would help make Myanmar easier for businesses, Witton suggested two things: extending the current one-year tenancy agreements, and improving the payments system.
Another positive step took place on January 28, when parliament passed a new Financial Institutions Law, which could pave the way for mobile banking. Yoma Bank is excited, and has created a mobile banking joint-venture with Norway’s Telenor.
“We are ready to go as soon as we’re allowed, which should follow the release of the newly-drafted law,” said Bosher.
Finding the talent
Tina Singhsacha, country head for Standard Chartered’s Yangon representative office, estimates that 50,000 people may work in banking in Myanmar, but notes the economy has grown at over 8% a year since 2010. Mobile banking would be a boon to Myanmar’s lenders, but they face a further hindrance. Talent – or rather a lack of it.
“If the banking system grows by 10% a year then you’ll need 5,000 more people just this year, assuming no economies of scale,” she told FinanceAsia. “The government needs to focus on more vocational training.”
Additionally, many companies remain on US sanction lists, and few businesses or banks publish financial data, so better disclosure is sorely needed. But it takes trained people to sort the wheat from the chaff, and not enough exist in Myanmar.
“This country has been flooded with consultants, offering advice on what to do economically,” sighed Witton. “Could we instead have 10,000 accountants and bookkeepers?”
