Boosting public trust in banks through deposit insurance was the key theme of a seminar that brought together domestic and international banking representatives at Kandawgyi Palace Hotel in Yangon last week.
The seminar, titled Deposit Insurance: Sharing Experiences With East Asian Countries, was jointly organised by the Ministry of Finance and Revenue, the Central Bank of Myanmar and Myanmar Economic Resources International, and was held on Thursday, November 15 and Friday, November16. The event was sponsored by Malaysia’s Maybank.
The value of deposit insurance was thrust into the public spotlight in Myanmar when rumours concerning Kanbawza Bank threatened to start a run on the bank in early October, bank representatives said during the seminar.
Domestic banks were urged to invest in local companies to increase the capacity of those firms to expand, while boosting the banks’ holdings and earnings.
Maybank has sponsored two other banking seminars this year – in July and September – that focused on banking sector stability and financing for small- and medium-sized enterprises respectively.
Mr John Wong, the managing director of Maybank, said the bank provided a wide range of presenters with extensive experience in East Asia to share their understanding of banking in the region.
He said Myanmar’s banking sector offered “tremendous opportunities” and he wanted Maybank to assist the country’s economic development.
Maybank made agreements to cooperate with five Myanmar banks to offer money remittance services six months ago, and will further assist those institutions by drawing on its 52 years in the industry, he said.
Central Bank of Myanmar deputy director general U Thein Zaw said deposit insurance could create strong cooperation between banks and insurance.
However, the banking sector needs to shore up public confidence and added that deposit insurance was one mechanism that would help it to do so.
“Deposit insurance is essential for stabilising the banking business, even though this is a new product in Myanmar,” he said. “We will have a lot of challenges [to implement] this, but this seminar converts these challenges to opportunity.”
Some leading private banks, including Kanbawza and Co-operative Bank, have offered deposit insurance, provided by state-run Myanma Insurance, since 2011.
However, private bankers said that the insurance offered benefitted neither the banks nor consumers.
“If a bank faces bankruptcy, the insurance company will agree to pay out its policy but that will take three to four months, which is a long time,” said U Pe Myint, managing director of Co-operative Bank.
“And the insurer will never repay the full amount,” he said, adding that most payouts amount to 80 percent of the total deposited with the bank.
Domestic private banks buy government-issued treasury bonds from the Central Bank to be used as liquidity during times of crisis. The bonds pay 9.5pc interest annually, while the banks offer from 8-10pc interest on deposit accounts, although most pay 8pc he said.
“So we can get 1.5pc in profit from that, and we have a look at what else we can invest in, whether that’s buying paddy [rice] or gold. But paddy prices are unstable and we have to keep an eye on what’s happening with the draft of Central Bank Law to see whether it will allow us to buy gold.”