Thursday, July 27, 2017

Second round of foreign bank licences surprises lenders

International and domestic banks have reacted with surprise to the Central Bank of Myanmar’s plans to issue a second round of foreign bank licences early in 2016.

Pedestrians walk past the Central Bank building in Yangon. Photo: Naing Wynn Htoon / The Myanmar TimesPedestrians walk past the Central Bank building in Yangon. Photo: Naing Wynn Htoon / The Myanmar Times

The monetary authority made the unexpected announcement on December 14. Foreign banks with representative offices in Myanmar or which are in the process of opening one can apply in the second round, according to a Central Bank notice.

But those headquartered in Australia, China, Japan, Malaysia, Singapore and Thailand, which already have banks with Myanmar branches, cannot.

The licence will be for onshore wholesale banking through a branch, and a call for expressions of interest will be made in early 2016, the Central Bank said.

Several bankers believe the government is moving too fast by inviting another round of international firms while much of the necessary financial architecture is yet to be put in place.

Even if more international banks open branches there’s a limit to what they can do, said an official at a Singaporean lender with a branch in Myanmar.

“Banking policy is still very unclear, and it’s a challenge to get things moving,” he said, asking not to be named.

“The processes for getting the right documentation and registration are not clear, and these things need to be in place before the government opens things up further.”

Even officials at international banks eligible and eager to apply for a licence were surprised at the Central Bank’s announcement.

The initial entry of nine foreign banks into Myanmar has the potential to bring large benefits, but the rapid pace of entry also poses challenges to maintaining financial stability, said the International Monetary Fund in a report published in August.

Another set of international banks would help Myanmar’s economy, although in the short term it is more an opportunity for international lenders to show off how active they are in the country, said Myanmar Oriental Bank’s chair U Mya Than.

Officials at international banks however, see much more than an opportunity to show off.

“The decision will be taken at the corporate office but I definitely want us to open a branch here,” said Biswanath Dutta, the chief representative at United Bank of India’s Yangon office. “We sent head office the notification and our recommendation — there’s huge potential here and a lot of unexplored markets.”

U Mya Than also expects European banks to participate in the second round of licence applications.

An official at Standard Chartered’s Yangon office was in the process of receiving advice from head office on the Central Bank’s announcement and could not comment.

An official representative at a South Korean bank said he had started consulting with his head office as soon as the announcement was made.

“We’re finding out how much cash we need to put into the Central Bank,” he said.

The first nine foreign banks were required to put up a minimum of US$75 million in paid-in capital to set up a branch, of which $40 million was deposited at the Central Bank.

Daw May Toe Win, the Central Bank’s deputy director general of Financial Institutions Regulation and Anti-Money Laundering, told The Myanmar Times the capital requirement for the second round would also be $75 million.

She would not comment on how much would be deposited at the Central Bank, or on concerns that the government was opening up the market to foreign lenders too quickly.

For the nine banks already boasting branches, and the potential new entrants, one concern is increased competition.

“I think the Central Bank is going to distribute a lot more licences, even though it has said it will only award them to eligible banks,” said the official at the South Korean bank.

International banks are restricted to a narrow range of activity — permitted only to lend to foreign businesses and local banks. They may team up with local lenders to offer additional services, but are prohibited from involvement in retail operations.

“So the scope is narrow, the playing field is small and now there are more banks joining in,” said the official at the Singapore lender with a branch office in Yangon.

Indian banks have been discussing a potential solution — a joint venture between two or three Indian lenders that would require only one licence.

Four Indian banks have representative offices in Myanmar: United Bank of India, Bank of India, Export-Import Bank of India and State Bank of India (SBI).

“It is something we’ve discussed,” said an official at one of those banks, but declined to name which firms were part of the discussion.

“If one bank is granted a branch licence, then the business opportunities for the others diminish. It’s better to cooperate, potentially with a local lender too. That can also help split the $75 million capital requirement, which is a huge amount for some banks.”