Myanmar relaxes ban on foreign bank lending in sector overhaul

The rationale was to give local businesses more access to financing.

Reuters reports that the foreign banks in Myanmar are now allowed to lend to credit-short local businesses in the latest move by the central bank to rehabilitate the country’s underdeveloped banking sector.

In a letter signed by deputy governor Soe Thein, the Central Bank of Myanmar said that the decision was made to give local businesses more access to financing.

“A lack of access to capital is listed in survey after survey as the number one problem that Myanmar businesses face — ahead, even, of problems of unreliable electricity supplies and poor infrastructure,” Sean Turnell, an economic advisor to Myanmar leader Aung San Suu Kyi.

“Employed properly, this new capital will allow the expansion of existing enterprises, fund the establishment of new businesses, and along the way stimulate the creation of new products, new markets, new employment opportunities – and improved economic growth broadly,” he added.

The country’s banking sector, which has suffered decades of mismanagement under the former ruling military junta, only recently opened its door to foreign banks as part of sector overhaul that began in 2011.

Also read: Mynamar to grant license to 4 private banks

More recently, the country has allowed the 13 foreign banks in operation to add import financing to their trade finance service suite months after enabling seven overseas lenders to provide export financing. 

“We have a plan to allow more foreign banks to participate in the economy but we haven’t fixed the time,” CBM director general U Win Thaw was quoted in earlier media reports. 

However, the administration still has miles to go to enhance the attractiveness of the banking sector as it has to contend with a general preference for state-owned banks.

International banks could only operate in Myanmar via joint venture agreements with local banks or assist foreign-invested companies, data from ASEAN Briefing show. Such banks are also restricted to just one branch per banks and are mandated to invest a minimum paid-up capital of $75m.

Foreign banks with branches in Myanmar include ANZ Bank, ICBC, OCBC, UOB, Mizuho, MUFG, Sumitomo Mitsui, Shinhan Bank, Maybank, State Bank of India, E.Sun Commercial Bank, Bangkok Bank and VietinBank.

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