Sunday, August 20, 2017

Central Bank steps in to stop KBZ panic

Central Bank ‘is standing behind all private banks’, says senior official

The Central Bank of Myanmar last week stepped in to quell a rumour-fuelled run on one of the nation’s largest lenders, Kanbawza Bank.

The panic prompted customers to withdraw K8 billion from the bank’s branches in Yangon and Mandalay on October 5, up from the daily average of K1-2 billion, officials said.

In order to restore calm, the Central Bank of Myanmar issued a statement on the evening of October 5 backing the bank and dismissing the rumour.

U Win Thaw, the deputy director general of the Central Bank’s Yangon office, said at a press conference on October 6 that none of Myanmar’s banks were in danger of going under.

“This is only a rumour … the Central Bank can guarantee that all private banks [are healthy]. We’ve tightly restricted all private banks and ensured they follow the rules of the Central Bank. We’ve investigated all [owners of] private banks before they were allowed to open to check whether their money has been legally acquired,” he said.

“All private banks have to show their financial statistics every day to the Central Bank … the banks even complain that we place too many restrictions on them.

“The Central Bank is standing behind all private banks. We’re fully backing them.”

The panic began after rumours spread through social media early last week that a Kanbawza Bank truck filled with contraband – allegedly drugs – had been intercepted by police, and the bank’s chairman, U Aung Ko Win, had been arrested.

As a result, many people rushed to Kanbawza Bank branches to withdraw their savings, with large queues seen outside several branches in Yangon.

U Win Thaw suggested the rumours were the work of “underground saboteurs” who “don’t want the banking sector to develop” and were probably designed to harm the industry as a whole, rather than just Kanbawza.

“Banking sector development is a foundation of the country’s development. The intention of targeting the banking sector is to harm the country’s development, not only Kanbawza,” he said.

He said he was confident Myanmar was not heading for a repeat of the 2003 banking crisis, which occurred “because banks were not following the monetary rules”, he said.

“Now the Central Bank is handling all private banks carefully and that is why there won’t be any closures or bankruptcies. The 2003 crisis happened because enforcement was weak at that time.”

The previous evening, the Central Bank issued a statement through state-run television channels denying the rumour.

A small notice was also printed on the back page of the state-run New Light of Myanmar newspaper on October 6 that did not name Kanbawza but described the rumour as “hearsay”. It called on citizens to trust the banks.

“With respect to those news, the Central Bank of Myanmar announced that they are mere rumours aired by those with ill will to harm the interests of banks, and not true; that private banks are operating in line with banking procedures and rules and regulations under the systematic management of the Central Bank of Myanmar and thus, citizens can trust all the private banks,” the notice said.

Kanbawza Bank vice chairman U Than Lwin, a former deputy governor of the Central Bank, said depositors in Yangon and Mandalay had withdrawn K8 billion on October 5 but the bank still had enough cash to pay out more deposits.

He said the bank has about K100 billion in capital, and each branch has at least K700 million. The bank controls about one-third of the overall private banking sector, he said, and was also the second-highest income tax paying firm in the 2011-12 financial year, the Ministry of Finance and Revenue announced in June.

“We’ve found that the most worried people are small depositors, those who have K100,000 to K500,000,” he said at the October 6 press conference.

He said the Central Bank had given Kanbawza permission to start offering deposit insurance and this would further improve the bank’s reputation with customers.

He said the rumours were unlikely to have been started by a rival bank because of the risk the panic could spread throughout the industry.

“If a bank falls down, all other banks will be affected. We’ve seen this before in the 2008 global financial crisis and 1997 Asian financial crisis, where it started in Thailand spread to other Asian countries,” U Than Lwin said.

He said the Central Bank had introduced strict controls following the 2003 banking crisis to strengthen the sector and these had been stringently enforced.

“We are operating transparently, we never manipulate our audits, we accept international financial institutions to check our audits every time,” he said.

“The Central Bank has taken steps so there won’t be a repeat of 2003. It strictly manages the private banks. I have said [in interviews with the media] that the Central Bank over regulates … I want to tell the public now through the media, don’t believe the rumours,” he said.

Earlier in the week, U Aung Ko Win presided over the opening of the bank’s 79th branch, in Yangon’s Thingangyun township, on October 4.

U Than Lwin said U Aung Ko Win had wanted to attend the October 6 press conference but could not because he had to attend a meeting with President U Thein Sein in Nay Pyi Taw.