Ready to open account

The banking industry is bracing for a new era with three foreign banks getting the green light to open branches this month – the first time in half a century.

Six other foreign banks, under sweeping overhaul of the banking sector by Myanmar’s nominally civilian government, are to open their branches between now until September. 

Their presence is expected to speed up financial liberalisation as well as propel the economy to the next stage, as Myanmar is re-engaging itself with the world. Limited financial services are considered one of the obstacles faced by foreign companies, while Myanmar is banking on foreign expertise in helping it fight risks associated with economic growth, including money laundering. 

According to the Central Bank of Myanmar’s announcement on April 2, the three banks which have been the green light are Overseas-Chinese Banking Corp (OCBC) from Singapore, Bank of Tokyo Mitsubishi UFJ (BTMU) and Sumitomo Mitsui Banking Corp (SMBC).

“The three banks have undergone a stringent entry process as defined by the Central Bank of Myanmar in November 2014 … and have successfully met all requirements,” the central bank said.

Yasuhide Fujii, managing director of KPMG in Myanmar, noted that the company has seen a series of positive developments since the consulting firm established its presence in the country in 2012. The speed at which this has taken place gives investors confidence in the commitment of the authorities to the liberalisation of the economy. 

“However, the real work of getting the financial services market going starts now. Although the foreign banks that will be receiving licences are not likely to be able to fully operate in the same way as local banks, they will have a role to play in supporting greater investment flow into Myanmar,” said Fujii. 

 

First foreign bank

 

BTMU will be the first to commence branch operations, scheduled for April 22, while the other two will kick off on April 23.

Upon learning the good news, Go Watanabe, BTMU’s managing executive officer and CEO for Asia and Oceania, said that winning the licence within six months after getting the preliminary approval encouraged the bank to continuously enhance its services and further contribute to Myanmar’s economic development.

“This is especially meaningful to us, given the bank’s involvement in the early stages of reviews when the Myanmar government first mooted the idea to liberalise its financial sector a couple of years ago,” he said.

“We recognised that this is just the beginning of a long journey but we are confident that together, we can help transform Myanmar’s financial sector into one that is well-developed and can effectively spur and drive sustainable economic growth.”

Watanabe added that the new Yangon branch would play a critical role in facilitating greater cross-border trade flows between Myanmar and the bank’s global network that spans more than 40 locations. 

“We believe in the potential of this country. 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. This is also very much aligned with realising the vision of mutual prosperity for both Myanmar and Japan, with an overall aim to contribute to the growth of Myanmar’s economy,” he said.

Watanabe said that Myanmar has attracted a lot of attention from foreign firms as a new emerging market in Asia, given its large geographical territory, population, labour force, abundant natural resources, and the high growth potential of its domestic demand. BTMU’s Yangon branch will provide full banking services, including deposits, loans, and foreign exchange, to foreign firms and domestic banks operating in the nation while it continues to serve as an agent bank for the Japanese government’s Official Development Assistance yen loans and aids to Myanmar.

Sumitomo and OCBC will start operations on April 23. 

Takeshi Kunibe, president and CEO of SMBC, said that Myanmar’s economic growth is expected to accelerate with increase in foreign direct investment, such as in the development of Thilawa Special Economic Zone. 

“With the opening of the Yangon branch, we will be able to better meet the diverse needs of clients expanding their business in the country by providing financial services in collaboration with our local partner KBZ, the biggest domestic private bank in Myanmar,” he said.

Linus Goh, OCBC’s head of global commercial banking, said that the licence allows the bank to continue its support of foreign investments and projects in the on-going development of the Myanmar economy as well as to support the growth of its banking sector.

“Yangon branch is a significant addition to our regional footprint, in particular because of the strong interest in Myanmar from our customers across Southeast Asia and Greater China. In the past 18 months, we have seen a 40-per-cent increase in the number of our customers going overseas, and resource-rich Myanmar has become an attractive investment destination for our regional customers, especially with the impending launch of the Asean Economic Community in December,” he said.

Goh said that the new branch, with 20 staff – more than half being Myanmar nationals – would offer a full range of banking services. They include cash management, project financing, working capital financing and trade finance, as well as treasury and capital markets advisory and services to foreign firms and joint ventures, as well as domestic banks in Myanmar. Its customers will be able to open current and savings accounts denominated in Myanmar kyat, US dollar and Singapore dollar, take up loans and apply for trade and foreign exchange facilities. It will also offer Internet banking facilities to corporate customers in the country.

Daniel Tan will be OCBC’s Myanmar branch general manager.

 

Expected benefits

Despite some resistance from domestic banks, the foreign banks’ entry is expected to benefit Myanmar.

Though licence recipients are allowed to lend only in foreign currency, and not in the kyat, Myanmar's currency, unless they partner with a local bank, they will bring in new clients. 

Than Lwin, senior consultant of KBZ Bank and former deputy governor of the central bank, welcomed the final approval. He said that foreign banks’ participation could help strengthen Myanmar’s financial sector and the banking industry.

“How we can create a win-win situation is the most important. We still need to learn a lot from our foreign counterparts. Local staff skills will improve by cooperating with them. On the other hand, [the] foreign banks need to follow all the rules and regulations set by the CBM. The CBM itself needs to raise its capacity to monitor their activities in Myanmar so that they will not hurt the interest of local banks,” he said.

With growth forecast at over 8 per cent for the next few years, the foreign banks’ entry would boost the ratio of Myanmar’s loans to gross domestic product (GDP). Bank loans are now less than 30 per cent of GDP, compared to over 100 per cent in Thailand and Vietnam.

According to the United Overseas Bank (UOB) Asian Enterprise Survey 2014, one in four Asian enterprises plan to expand into Myanmar this year. One-third of businesses from Hong Kong (31 per cent) said they would expand into Myanmar in 2015, followed by those in Thailand (28 per cent), mainland China (26 per cent), Malaysia (25 per cent) and Singapore (21 per cent).

Aside from development of infrastructure, UOB is convinced that Myanmar would attract more foreign investment through the liberalisation of the local banking sector. “The awarding of foreign bank licences to nine international banks last year, including UOB, will give foreign investors access to a wider range of financial solutions,” the Singaporean bank said.

According to the United Nations’ study released in May, only 4 per cent of the more than 50-million population had savings accounts in their own names. 

 

Anti-money laundering 

Engagement of foreign banks could somewhat improve the regulatory environment in the country, which has been recommended to address shortcomings in anti-money laundering and combating the financing of terrorism (AML/CTF) 

In the public statement released on February 27, the Financial Action Task Force (FATF), the global standard-setting body for the efforts, highlighted the deficiencies in the strategic AML/CTF regime in Myanmar, Algeria and Ecuador.

It praised the country’s steps towards improving the measures. 

“However, despite Myanmar’s high-level political commitment to work with the FATF and APG (Asia/Pacific Group on Money Laundering) to address its strategic AML/CFT deficiencies, Myanmar has not made sufficient progress in implementing its action plan, and certain strategic AML/CFT deficiencies remain,” it said.

Myanmar is urged to continue to work on implementing its action plan to address these deficiencies, including by: (1) adequately criminalising terrorist financing; (2) establishing and implementing adequate procedures to identify and freeze terrorist assets; (3) ensuring an operationally independent and effectively functioning financial intelligence unit; and (4) strengthening customer due-diligence measures.