United Amara Bank became the second local lender to sign with the Asian Development Bank under its Trade Finance Program (TFP) yesterday, and will receive guarantees for international letters of credit worth up to US$4 million each year.
It joins the TFP program almost a year after Cooperative (CB) Bank signed to receive up to $12 million in annual guarantees last October.
The deal marks the first step in a long-term partnership to assist trade financing for local businesses in Myanmar and ultimately to help boost Myanmar’s economy, United Amara Bank said in a statement yesterday.
Trade financing is still new in Myanmar – most exporters and importers pay for shipments on the spot. A letter of credit system, on the other hand, allows a bank or development institution to guarantee that the seller will receive a timely payment from the buyer – if they fail to pay, the sponsor steps in.
With a letter of credit agreement in place, exporters are able to ship products before receiving payment. However, many foreign banks do not yet accept letters of credit from Myanmar banks.
Local lenders such as CB Bank and United Amara Bank already have some trade lines with international lenders, but their credit ratings are low, which limits the amount of business they can do.
The ADB, on the other hand, has an “AAA” credit rating – the highest available. If it guarantees the trade lines of local banks, they will be able to finance much larger transactions.
United Amara Bank’s CEO U Thein Lwin said yesterday that his bank first conceived of the partnership back in 2013.
“It has taken many discussions, reviews and agreements for the line of credit to be realised,” he said, thanking everyone involved for their “stamina”.
The bank has grown fast since it was set up in 2010 – as of March 31, it had a deposit size of K596 billion, assets worth K662 billion and a network of 52 branches and 250,000 customer accounts, he said.
“In the future, UAB will continue to grow. We already have a plan to expand our network to 75 branches by the end of this fiscal year.”
Myanmar’s total trade volumes have grown by an average of 14 percent annually during the past five years, the ADB said, while imports have grown 19pc per year since 2012, spurred by strong economic growth of around 7pc.
Janet Hyde, an ADB relationship manager for Myanmar, noted that other local banks are being considered for the program.
“The TFP is an open-ended program and we are continually assessing new banks for membership, not least in Myanmar,” she said.
The value of the facilities approved can vary according to the due diligence process and the size of the trade finance needs of each bank, she said.