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Myanmar funding its banking sector

Written by Andrea De Grazia

Myanmar’s Government is continuously gearing towards improving the financial sector in the country by allowing foreign banks to re-enter the country after years of military rule. By September, the Central Bank of Myanmar (CBM) is expected to grant licenses to a number of foreign banks.

Although the country has recently been more attractive -thanks to a fast growth in the financial sector and the great need for financing to continue development in the nation, it is still advised that the government should be cautious with its plan on developing the banking sector.

The financial system in the country is still not very developed, and Myanmar remains to be one of the poorest economies in the ASEAN region.

35 foreign banks have started their business in Myanmar in the past few years. However, they do not have permission of investing in the local sector and will continue to be limited to one branch each.

Fully owned foreign banks in the retail sector could lead to the weakening of the local banks and increase the systematic risk of the market. High presence of foreign banks could generate bankruptcy of domestic institutions. In fact, local banks are not well regulated and risky.

The International Monetary Fund expectations for Myanmar’s annual growth have increased to 8.5 percent this month, thanks to recent economic reforms.

The advantages of introducing foreign banks can help boost technology, infrastructure and funding in the country.

In a report by the the United Nations, only 4 percent of the population of 61 million people own a banking account. Kobsak Pootrakool, an executive vice president at Thailand’s Bangkok Bank stated the importance of developing the banking sector in order to enhance the effect of political and economical changes.

The criteria for selecting the foreign banks allowed to operate in Myanmar are based on their international rating and their capacity to stimulate the economical and financial growth. Licenses will be awarded by an assessment team comprising officials from the CBM, Ministry of Finance, with the support from World Bank, IMF and a German consultancy firm.

Central Bank of Myanmar deputy governor U Set Aung has stated that a minimum capital of USD 75 million will be required from foreign banks to operate. Also, they will be allowed to operate with a combination of subsidiary and branch system.

Some other obstacles for foreign banks will be the impossibility to create branches, and to offer retail banking and banking services for existing banks.

Local banks foresee the entrance of foreign banks in the market as a challenge because of their better access to capital technology and human resources.

Myanmar will start developing a capital market with the launching of its first Stock Exchange in October 2015. It will work in partnership with Tokyo Stock Exchange and Daiwa Securities Group. Six companies have already applied for lisi listing in the stock exchange, and more will eventually be listed and allow the access to several multinational corporation in the future.

–Edited by Kristine Diaz

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