Doors opening for foreign banks

As many as 10 foreign banks may be allowed to open branches as wholly-foreign owned entities in Myanmar starting next year, an official at the Central Bank said.

This move is likely to turn the spotlight on the ability of local banks to handle international competition as the country gears up for entry into the ASEAN Economic Community in 2015.

The decision to loosen restrictions on foreign banks apparently follows a meeting between Central Bank of Myanmar officials and Christine Lagarde, managing director of the International Monetary Fund, earlier this month.

“We discussed this with the managing director of the IMF. She suggested not allowing a large number of foreign banks [to operate in Myanmar] at the same time, not delaying the process but allowing a small number in the early phase. That might be five or six, not more than 10,” said one Central Bank of Myanmar (CBM) official, who requested anonymity as he is not authorised to speak to the press.

However, the entry of foreign banks into the country is likely to be delayed because of deficiencies in the infrastructure of CBM and a lack of regulatory capacity, say observers.

“As far as I know, the Financial Institutions Law is still being drafted, and the rules and regulations of the Central Bank Law have not yet been finalised. Without these laws, the process cannot be completed, including decisions on what the foreign banks will be able to do,” said U Than Lwin, vice president of Kanbawza Bank.

A CBM official who requested anonymity told The Myanmar Times on December 11, “We are awaiting instructions from the Office of the President on the type of permission for financial services from foreign banks. It is likely to happen early 2014.”

The selected banks are likely to be chosen from among the 34 international banks with a presence in Myanmar, said the official.

Concern has been expressed over the implications for domestic financial institutions. “The local banks won’t accept any disadvantage from allowing foreign banks because we can’t compete with them. We don’t have the capacity. But we are willing to cooperate with them and learn from them,” said U Than Lwin.

A regional bank official said the entry of foreign banks would be beneficial for the growth of local businesses.

“I think it is good news, depending on the circumstances. But the CBM has to build strong infrastructure by developing its staff capacity, and to establish mechanisms to supervise and regulate foreign banks before this starts,” said Kim Bun Socheat, managing director of microfinance institution Acleda MFI Myanmar Co Ltd., which is based in Cambodia as the country’s largest commercial bank.

“We have to have enough time to prepare for foreign banks” said the CBM official. “They should apply with concrete proposals. The selection process is likely to take time. But the joint venture process will take the longest time. We are not sure yet what kind of type of permission will be given to foreign banks.”

The United States this year issued a general licence to Myanmar Economic Bank, Myanma Investment and Commercial Bank, Asia Green Development and Ayeyarwady Bank.

source: The Myanmar Times

http://www.mmtimes.com/index.php/business/9032-foreign-banks-to-be-allowed-in-early-2014.html