Organised by: Myanmar’s Banking Sector in Transition Current Status and Challenges Ahead
Published by Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH Registered offices Bonn and Eschborn, Germany Banking and Financial Sector Development in Myanmar Rangoun Business Centre 97/A, 3rd Floor, West Shwe Gon Daing Road, Bahan Township, Yangon, Myanmar T +95 1 554 491 F +95 1 554 497 E email@example.com www.giz.de As of November 2018 Responsible Armin Hofmann Design Credit EYES-OPEN, Berlin Disclaimer The views expressed in this publication do not necessarily reflect the views and policies of the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH or its Management Board. The GIZ does not guarantee the accuracy of the data included in this publication and accepts no responsibility and liability for any consequence of their use. On behalf of the German Federal Ministry for Economic Cooperation and Development (BMZ)
Myanmar’s Banking Sector in Transition Current Status and Challenges Ahead 2018 GIZ Banking Report 4th Edition, 2018
The GIZ in Myanmar The Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH is a German federal enterprise that supports the German government in international cooperation for sustainable development via technical advice and capacity development. The GIZ operates in more than 130 countries and employs approximately 20,000 staff members worldwide. On behalf of the German Federal Ministry for Economic Cooperation and Development (BMZ), GIZ has resumed its activities in Myanmar in 2012 in the area of sustainable economic develop- ment and rural economic development and infrastructure. GIZ activities include three comple- menting areas of sustainable economic development that include: a) Private Sector Develop- ment, b) Technical and Vocational Education and Training, and c) Banking and Financial Sector Development. The GIZ Banking and Financial Sector Development (BFSD) Program in Myanmar started in autumn 2012 and the current project will continue until December 2019. It is based on four complementing pillars: 1. GIZ supports the Central Bank of Myanmar (CBM) in creating, enforcing and promoting stable framework conditions for banks. This includes the support of human capacity development within the CBM as well as offering it specific technical advice. 2. GIZ supports Myanmar key stakeholders in strengthening the legal framework and the enforcement of adequate standards in the area of financial reporting and auditing. This includes the support of human capacity development of the relevant stakeholders, such as the CBM, the Banks and Monetary Affairs Development Committee of the Lower House of the Myanmar Parliament, the Myanmar Accountancy Council (MAC), the Office of the Auditor General (OAG), and the Myanmar Institute of Certified Public Accountants (MICPA). 3. GIZ supports training providers for the banking sector in the development of human resources in the banking industry. In this context, the GIZ assists in the development of adequate and demand-oriented qualification and training measures at the Yangon Univer- sity of Economics. Furthermore, the GIZ facilitates cooperation and the exchange of information concerning human capacity development among Myanmar banks. 4. GIZ supports the banking industry directly in developing adequate structures, processes, and products for SME finance and the application of International Financial Reporting Standards (IFRS). Two Myanmar partner banks are being supported by the GIZ in the development of tailor-made financial services for SMEs, with the goal of increasing their respective SME-loan portfolio, and three Myanmar partner banks are being supported to implement financial reporting standards. For more information, please visit https://www.giz.de/en/worldwide/17772.html. 6
Acknowledgement This report, now in its fourth edition, was a joint and fruitful effort with valuable contributions from many experts and institutions. In particular, we would like to express our gratitude to the Central Bank of Myanmar, the Yangon University of Economics and the wider Myanmar banking community for their inputs and comments. Furthermore, we want to thank Professor Dr Udo Steffens, retired President and CEO of the Frankfurt School of Finance and Management, who provided his insightful ideas on the future of the Myanmar banking sector in the last chapter of this report. Staff members of the GIZ Banking and Financial Sector Development (BFSD) Program, namely San Thein, Ms Htay Htay Aye, Mr Anthony Deary and Mr Andreas Ruepp conducted thorough research for the report and put their findings into intelligible words. In addition, Mr Linn Kyaw Swar, Ms Ei Ei Phyu, Ms Kyi Tha Maw, Ms Phyu Phyu Baw, Ms Chue Wai Phyo and Ms Katharina Kaeppel who performed much of the supporting analysis for the report. Last but not least our thanks go to the editor of this report, Mr Helmut Grossmann. Myanmar Font for “Thank You” To all of them and those who remain unnamed, working in the background on so many different tasks that must be completed to publish a sound report, we say a big THANK YOU! ေက ်းဇ်းတင္ပးတယင Armin Hofmann, GIZ-BFSD Program Director 7
Foreword Myanmar is in the middle of a democratic and economic transition; the country is moving from a centrally-directed economy to a market-oriented one. Both domestically and regionally high hopes are attached to this transition. The Myanmar people are anticipating that the wide-ranging economic reforms will increase their economic opportunities and raise their living standards. The development of the private sector is essential for the sustainable development of Myanmar´s economy. Small and Medium Sized Enterprises (SMEs) particularly have the potential for becoming the driving force behind economic growth and thus also for poverty alleviation and job creation. Doing business in Myanmar is challenging. Limited access to financial services and credit presents a big hurdle for local companies. The Global Competitiveness Index (2018) of the World Economic Forum ranks Myanmar at 131 out of 140 countries and identifies access to finance as the crucial factor for its ranking at the bottom end. Germany and Myanmar are working closely together in this area. On behalf of the German Federal Ministry for Economic Cooperation and Development (BMZ), the Deutsche Gesell- schaft für Internationale Zusammen arbeit (GIZ) GmbH is supporting Myanmar to develop its economy in a sustainable way. Promoting sustainable access to finance for SMEs is a key constituent to achieving this goal. This report, now in its fourth edition, focuses mainly on the banking sector. It provides an overview of the sector’s statistics, regulatory framework, and status of regional integration based on data analysis from various sources. The report seeks to fill an important information gap. Data is precious and notoriously scarce in Myanmar and the financial sector particularly stands out for its discreetness. We see this report as a foundation for improving disclosure of financial information. We are confident that the stakeholders in the financial sector will build on our findings and hope that proactive contributions to more transparency in the sector are on the horizon. Dr. Petra Schill Country Director, GIZ Myanmar 8
Abbreviations and Acronyms AAT ABIF ACCA Association of Accounting Technicians ASEAN Banking Integration Framework Association of Chartered Certified Accountants Authorized Dealer Asian Development Bank ASEAN Economic Community ASEAN Financial Integration Framework Asset Liability Management Anti-Money Laundering AD ADB AEC AFIF ALM AML AQAFHE ASEAN Quality Assurance Framework for Higher Education ASEAN Association of Southeast Asian Nations ATM AYA BFRIC Automated Teller Machine Ayeyarwaddy Bank Banking Sector Reporting Standards Implementation Committee Banking and Financial Sector Development Bundesministerium für wirtschaftliche Zusammenarbeit und Entwicklung (German Federal Ministry for Economic Cooperation and Development) Capital Adequacy Ratio Co-operative Bank Central Bank of Myanmar Central Bank of Myanmar Law Customer Due Diligence Chartered Financial Analyst Combating of the Financing of Terrorism Credit Guarantee Insurance Construction and Housing Development Bank Chartered Public Accountant Central Statistical Organization Euro Financial Action Task Force Financial Institutions of Myanmar Law Financial Institutions Law Financial Institutions Supervision Depart- ment Financial Intelligence Unit Foreign Exchange First Private Bank Financial Regulatory Department BFSD BMZ CAR CB CBM CBML CDD CFA CFT CGI CHDB CPA CSO EUR FATF FIML FIL FISD FIU FOREX FPB FRD FSI GDP GIZ IFC IFRS IMF ISA IT JICA KBZ KfW KYC LCCI LIFT MAB MAC MADB MALI Financial Soundness Indicator Gross Domestic Product Deutsche Gesellschaft für Internatio nale Zusammenarbeit International Finance Corporation International Financial Reporting Stand- ards International Monetary Fund International Standards on Auditing Information Technology Japan International Cooperation Agency Kanbawza Bank Kreditanstalt für Wiederaufbau Know Your Customer London Chamber of Commerce & Industry Livelihoods and Food Security Trust Fund Myanmar Apex Bank Myanmar Accountancy Council Myanma Agricultural Development Bank Ministry of Agriculture, Livestock and Irrigation Making Access Possible Myanmar Banks Association Master of Banking and Finance Myanma Economic Bank Myanmar Financial Reporting Standards Mobile Financial Service MAP MBA MBF MEB MFRS MFS MFSP Mobile Financial Service Provider MFTB Myanma Foreign Trade Bank MI MIB MICB Myanmar Insurance Myanmar Institute of Banking Myanma Investment and Commercial Bank Myanmar Institute of Certified Public Accountants Myanmar Kyat Mobile Network Operator MICPA Myanmar Payment Union Myanmar Standards on Auditing MMK MNO MOPF Ministry of Planning and Finance MPU MSA MSME Micro, Small and Medium Enterprise MSR MWB Myawaddy Bank NGO NIM Non-Government Organization Net Interest Margin Myanmar Survey Research 9
NLD NOP NPL OAG PFIS PIE POS QAB RoA ROSC RTGS SCPL SDR National League for Democracy Net Open Position Non-Performing Loans Office of Auditor General Partnership Framework on Inclusive Growth and Sustainable Development Public Interest Entity Point Of Sale Qualified ASEAN Bank Return on Assets Report on Observance of Standards and Codes Real Time Gross Settlement Seasonal Crop Production Loans Special Drawing Right Sida SIM SLC SME SOB SWIFT TFP UAB UNCDF USD YUE Swedish International Development Cooperation Agency Singapore Institute of Management ASEAN Senior Level Committee on Financial Integration Small and Medium Enterprise State-Owned Bank Society for Worldwide Interbank Financial Telecommunication Trade Finance Program United Amara Bank United Nations Capital Development Fund United States of America Dollar Yangon University of Economics 10
Executive Summary Regulatory and Supervisory Framework The stability of the financial sector is of paramount importance for the well-being of a country and its people. It is the chief responsibility of a central bank to ensure this stability. Myanmar last experienced a severe banking crisis in 2003 when a bank run on private banks led to the collapse of three major financial institutions and resulted in economic hardships for the whole country. It is therefore with good reasons that the financial sector is one of the most heavily regulated sectors in the economy. Since the 2003 banking crisis, Myanmar’s legal framework for regulating the financial sector has been undergoing heavy reforms to bring the country’s banks closer to internationally accepted standards of operation and prepare the country for ASEAN integration. The most formative laws for the contemporary banking sector of Myanmar are the Central Bank of Myanmar Law 2013, the Financial Institutions Law 2016, the Foreign Exchange Management Law 2015 and the Anti- Money Laundering Law 2014. The Financial Institutions Law is the cornerstone of the current government’s banking sector reform. It aims not only to develop and stabilize the financial sector but also to protect the depositor’s interest. Moreover, it tries to meet international best practices in accordance with the Basel Core Principles issued by the Basel Committee on Banking Supervision. The law grants the Central Bank wide-ranging powers to supervise banks and non-bank financial institutions. It encourages the practice of good corporate governance in banks, and promotes transparency and accountability as well as the modernization of the national payment system. Furthermore, it offers clear exit strategies for banks, should they become non-viable. This law and its associated rules and regulations will profoundly re-shape the framework conditions under which banks operate, develop and innovate. In addition, the Financial Institutions Law was the basis for seminal regulation issued by the Central Bank on Mobile Financial Services. Four important prudential regulations emanated from the Financial Institutions Law: Capital Adequacy Regula- tion, Asset Classification and Provisioning Regulation, Large Exposures Regulation, and Liquidity Ratio Require- ment Regulation. In addition, Myanmar has adopted the International Financial Reporting Standards and the International Standards on Auditing in 2009. The new reporting standards will become fully applicable in report- ing systems by the fiscal year 2022–23. The Banking Sector Financial Reporting Standards Implementation Com- mittee (BFRIC) was founded in 2016 to oversee and guide the adoption and implementation of the new standards. Management of foreign exchange is of particular concern for Myanmar’s economy. The new Foreign Exchange Management Law liberalized the foreign exchange market and lifted all restrictions on transactions in the current account of the country’s balance of payments. After the remarkable devaluation of the Myanmar Kyat in August 2018, the CBM initiated various measures to stabilize the exchange rate and revoked the instruction to conduct buying and selling within 0.8% of the CBM reference rate. The Banking Sector of Myanmar For almost five decades the people of Myanmar and the country’s economy lived through an era of harsh restrictions under the rule of a military regime. International sanctions led to the isolation of the country. Since 2010, reform efforts by the Myanmar government and the opening up of the economy have triggered economic 11
growth and high hopes for millions of low income households. The banking sector is one focus of the new government’s economic reforms. Although private banks today are more prevalent, state-owned banks still play an important role in Myanmar, especially in terms of deposit mobilization and rural outreach. The four state-owned banks of the country cur- rently go through a reform process to improve their financial performance and re-focus their business strategies. Private banks have been banned by the military regime until 1992. Today there are 27 domestic private banks operating in Myanmar, which own about 67% of total bank assets. Private banks are the drivers for innovation and growth in Myanmar’s banking sector. However, asset concentration is high and most private banks are struggling to meet the new regulatory requirements. Foreign banks were re-admitted to operate in Myanmar in 1990. Today there are 13 foreign licensed banks and 49 representative offices of foreign banks in Myanmar. In view of Myanmar’s integration into ASEAN, the pressure to open up the financial sector for foreign institutions is steadily increasing. The new Myanmar Companies Act announced in August 2018 allows foreign banks up to 35% stake in local banks, potentially facilitating knowledge transfer and capitalization of the domestic banking sector. However, there is a risk that domestic banks are not strong enough to withstand competition from foreign banks should they be allowed to operate freely. Backed by the banks’ strong demand as well as by political and economic liberalization, the supporting infra- structure for Myanmar banks is developing at a fast pace. This includes institutions like the Myanmar Banks Association, the Myanmar Payment Union and the emerging Myanmar Credit Bureau Limited, as well as numerous bank training and education providers. Several private training providers have been established to add to the rather low supply of university degree programs. However, the current supply of training is still not sufficient to meet the future needs of the sector. Moreover, ensuring the quality of offered programs remains a challenge as long as there are no national quality standards set by the respective authorities. Services of the Banking Sector Due to the historically restrictive lending regulations of the Central Bank of Myanmar, there is a culture of overdraft lending and conservative practice using almost exclusively land and buildings for loan collateral. Among other unwanted repercussions, these practices resulted in low lending to small businesses and uncer- tain credit quality. As the Central Bank realised the growing risks it recently obligated banks to convert over- drafts to loans. Banks are also encouraged to develop sound risk management systems and new loan products assessing client creditworthiness through cash-flow and business cycle analysis. Although the Small and Medium Enterprise (SME) sector has been identified as core aspect for development of Myanmar’s economy, SME loans accounted for less than 0.2% of private bank loans in December 2017. Most entrepreneurs finance their businesses with own funds, informal borrowings and bank overdrafts. While it is still difficult for SMEs to access bank loans, there are more financing opportunities these days, especially through the help of international organizations. The emerging Myanmar Credit Bureau and a new register of moveable asset pledges will soon make it easier for banks to appraise the creditworthiness of potential borrowers. The agricultural sector which employs around two third of the national labour force is also grossly under- supplied in terms of bank credit. As long as private banks shy away from this business the state-owned Myanma Agricultural Development Bank will remain the largest agricultural lender in the country. 12
The trade financing sector of Myanmar was monopolized by state-owned banks until private banks were allowed to provide trade finance in 2012. Today, local banks provide fee-based services such as letter of credits, bank guarantees, and interest-bearing services including import financing, and pre and post shipment export financing. In December 2017, the Central Bank of Myanmar started allowing foreign banks to conduct export financing, and in August 2018 foreign banks were permitted to start offering import trade financing services. Today private banks dominate the Myanmar deposit market, holding approximately 66% of total bank deposits, while the market share of state-owned banks has decreased sharply over the past few years. Banks offer fixed deposits, call deposits and current accounts. Deposit accounts are often tailored to serve different customers’ needs, for instance, minor deposit account, sailor account, wedding deposit account and foreign currency account. Due to Central Bank instructions and the shortage and volatility of foreign currency in local banks, foreign currency accounts are generally more restricted in terms of depositing and withdrawing than local currency accounts. Domestic and international remittances play a crucial role for Myanmar’s economy and poverty alleviation since people from poor rural areas are increasingly migrating either to big cities or neighbouring countries for work and send back money to their families. Approximately 3 million Myanmar nationals living abroad remitted around USD 3.5 billion in 2015, which was about 5.4% of Myanmar’s GDP in that year. Myanmar banks and specialized remittance service providers offer a wide range of money transfer services. Recently, there have been significant improvements in domestic remittance services by local banks through their e-banking and mobile payment platforms. However, banks face fierce competition from Mobile Financial Service Providers which are only allowed to provide domestic remittance services to the public and from informal remittance channels called hundis which still play a large role. Myanmar was first introduced to offline debit cards in 1996, but the expansion of debit cards and electronic payment services came to an abrupt end due to the 2003 banking crisis. It was not until 2012 that debit cards returned and three years later credit cards were introduced to the country. For many years the Myanmar Payment Union had a monopoly on issuing debit and credit cards, but in January 2017 the government removed restrictions on international payment companies and allowed banks to issue co-branded cards. In recent years, mobile financial services have become an important means for financial inclusion in Myanmar. Currently, there are five major bank-led mobile banking services in Myanmar. Some banks also have their own branded e-banking platforms. In addition, there are three licensed Mobile Financial Services Providers in Myanmar. The Regional Perspective Despite its rapid development, the Myanmar banking sector still remains the smallest market when compared with other Southeast Asian nations. The profitability of Myanmar banks is weak evidenced by low net interest margins and insufficient non-interest income. The fixed interest rate environment adds additional challenges such as the inability to price risk which results in shortfalls in interest income and very low loan-deposit ratios. Moreover, there is a lack of modern banking infrastructure and reporting transparency. This is particularly troublesome when considering the country’s declarations to integrate into the Association of Southeast Asian Nations (ASEAN) community. Myanmar joined ASEAN in 1997. Financial sector integration under the ASEAN Banking Integration Frame- work is scheduled to begin in 2020. In preparation, it is expected that the Central Bank of Myanmar will gradually adjust financial sector regulations. For Myanmar’s local banks, this will herald a new era of tougher competition with foreign banks and probably a painful consolidation process, but at the same time, potential for improved access to capital, banking infrastructure and know-how. 13
Introduction 1 A sound fi nancial system is essential for the health of an economy. The fi nancial sector plays a crucial role for economic development, in particular by creating money, mobilising deposits, allocating capital, and providing modern payment and insurance services. An effi cient and effective fi nancial sector thereby reduces costs and risks in the real sector. Hence, the stability of the fi nancial sector is of paramount importance for the well- being of a country and its people. And it is the chief responsibility of a central bank to ensure this very stability.
Myanmar’s Banking Sector in Transition Myanmar is a lower middle income economy with a GDP per capita of 1,299 USD in 2017. Strong eco- nomic growth over many years translated into a substantial reduction in poverty. Nevertheless, still more than 32% of the population lived below the national poverty line in 2015, and the country is considered the poorest nation within the ASEAN region, with low Human Development Index and fi nancial inclusion indicators. Moreover, the economy remains vulnerable as illustrated by the rapid currency depreciation between April and August 2018 and the related rise in infl ation. 1 Box 1: Myanmar in fi gures Population (2017) 2 : 53,370,609 Surface area: 676,590 sq.km Population growth (2017): 0.92% GDP per capita (current USD, 2017): 1,299 USD GDP growth (2017): 6.37% Human Development Index 3 : 0.578 / Rank 148 Financial inclusion 4 : 25.61% of the population aged 15 years or older had an account at a formal fi nancial institution in 2017; 6.6% of small fi rms had a bank loan or line of credit in 2016 Infl ation (2018 forecast) 5 : 6.2% Exchange rate (September 2018) 6 : 1 USD = max. 1610.5 MMK, min. 1512.0 MMK 16
Chapter 1 – Introduction Due to its history the fi nancial sector of Myanmar is dominated primarily by commercial banks. The sector struggles to fulfi l its role as a fully-fl edged fi nancial intermediary. In March 2016 the banking sector still held 92% of total fi nancial sector assets (about 42.4 trillion MMK). The remaining 8% was comprised of Insurance, Securities, Finance Compa- nies and Micro Finance Institutions. Banks have grown rapidly in size in the last decade; both deposit and loan as a ratio of GDP increased approximately 3 times within the last 6 years, however the momen- tum of growth is now slowing down. Financial intermediation Loan Deposit 45 40 35 30 25 20 15 10 5 0 2010 / 11 2011 / 12 2012 / 13 2013 / 14 2014 / 15 2015 / 16 2016 / 17 Reference: GIZ (2016), IMF (2018) Figure 1 Financial intermediation (Loans and deposits in % of GDP) Historical Perspective A brief look at the history of the Myanmar banking sector can help to explain the current situation. The modern banking sector of Myanmar went through fi ve distinct phases: the British colonial era until 1948; the post-independence period from 1948 to 1962; the military-socialist regime from 1962 to 1988; the military regime after 1988 with far-reaching economic reforms starting in 2010; and fi nally, the reforms initiated under the new NLD government since November 2015. 7 In the British colonial era from 1826 to 1942, the banking system of Burma, as the country was called then, was entirely shaped by the British rulers. The fi rst central bank emerged in 1939 out of the Ran- goon branch offi ce of the Reserve Bank of India. By the end of the colonial era, a total of 20 banks operated in the country, most of them with head- quarters overseas. 17
Myanmar’s Banking Sector in Transition During the Japanese occupation from 1942 to 1945 the previous financial system collapsed entirely. Instead, the Japanese created several financial institutions whose sole purpose was to extract resources from Burma. After the defeat of the Japanese, however, the foreign banks returned and the Union Bank of Burma took over the role of a central bank. In 1948, Burma became independent and the banking sector flourished under the new parliamentary democracy. At that time the banking industry contributed more than one third to Burma’s gross domestic product and the Burmese banking sector was considered to be the most developed in the region. In 1963, one year after the military seized control of the country, all banks were nationalised and soon amalgamated into the Peoples Bank of the Union of Burma. However, the economic policies of the military-socialist regime failed badly and in 1988 the State Law and Order Restoration Council took over power. This military junta chose a more market oriented approach. With the Financial Institutions of Myanmar Law it started to liberalise the financial sector, resulting in the re-emergence of private banks in 1992. However, after a decade of rapid growth a serious banking crisis hit the country in 2003, resulting in an economic recession. Three major banks collapsed and the central bank introduced stringent prudential measures to reel in the crisis. After the 2010 election, a quasi-civilian government embarked on a series of political and economic reforms. Prudential regulations were eased and the central bank was given full autonomy. In January 2016, the new Financial Institutions Law, based on international best practices, was enacted. Several new private banks were granted licenses. 1861 First bank in Myanmar (Indian Presi- dency Bank of Bengal) 1963–1990 1948–1963 Expansion of domestic banking sector Socialist Ban- king System (incl. three demonetiza- tion waves) British Colonial Rule Japanese Occupation Military Rule (Socialism) 1988 Uprising 1992 First private bank licenses issued 2000 U.S. sanctions on Myanmar 1937–1947 First Central Bank of Myanmar (Reserve Bank of India) 1990 New financial laws (Central Bank of Myanmar Law and Financial Institutions of Myanmar Law) First elections in 20 years 2002 2003 Control of Money Laun- dering Law Banking crisis, early 2003 Figure 2 Major developments in the Myanmar Banking Sector (1861–2018) 18
Chapter 1 – Introduction The political reforms culminated in the free general elections of November 2015, which saw the opposi- tion party NLD win a large majority in parliament. Since then, the new government accelerated the various reform projects of the previous government. In summary, after almost five decades of harsh restrictions under military rule and stringent inter- national sanctions the former granary of Southeast Asia has become the poorest country of the region. Furthermore, the banking sector of Myanmar, once a front runner during the 1950s, is today the least developed in the ASEAN region. However, the Myanmar government has started to reverse this negative trend. Since 2011, various ambitious finan- cial sector reforms have been kicked off, in particular through the new Financial Institutions Law enacted in 2016. Significant reforms can be found in the Myanmar’s banking sector in 2017. The necessary regulations known as the “four regulations” (capital adequacy, asset classification and provisioning, large exposure and liquidity ratio) were released by the CBM in July 2017. With this effort Myanmar’s Central Bank sets the stage for a Basel II Framework in the banking sector. Myanmar’s currency (the Kyat) has depreciated remarkably since July 2018 due to external effects such as the US-China trade war and internal effects such as trade deficits. In August 2018, the Central Bank announced that it has removed a 0.8 percent trading band around the kyat, thus liberalizing the foreign exchange market. It also announced the liberalization of foreign banks to extend their banking services to local corporates which aims to improve access to funding for local businesses. 2011 Microfinance Business Law 2013 Central Bank of Myanmar Law & Securities and Exchange Law 2016 AEC, Financial Institutions Law, Regulation on Mobile Finan- cial Services 2015 Yangon Stock Exchange 2018 • Removing 0.8% trading band on Foreign Ex- change Market • CBM allows foreign banks to extend services to local companies 2012 Foreign Exchange Management Law (Mana- ged Floating System) Myanmar Payment Union: first debit cards, ATMs) 2014 Anti-money Laundering Law, Counterterro- rism Law, Foreign Exchange Management Regulations, Securities and Exchange Commission of Myanmar formed 2017 Four important regulations (Capital Adequa- cy Regulation, Asset Classifica- tion and Provisi- oning Regulation, Large Exposures Regulation, Liquidity Ratio Requirement Regulation) 19
Regulatory and Supervisory Framework 2 Financial sector stability is of paramount importance to a country’s economy. This insight was last experienced painfully during the 2008 global fi nancial crisis. Myanmar last experienced a severe banking crisis in 2003 when a bank run on private banks led to the collapse of three major fi nancial institutions and resulted in economic hardships for the whole country. It is therefore with good reasons that the fi nancial sector is one of the most heavily regulated sectors in the economy. Since the 2003 banking crisis, Myanmar’s legal framework for regulating the fi nancial sector has been undergoing heavy reforms to bring the country’s banks closer to internationally accepted standards of operation and prepare the country for ASEAN integration.
Myanmar’s Banking Sector in Transition Banking Law Banking law is essentially a specialized branch of administrative law for banks and other financial institutions that lays out the state’s requirements for running their businesses. 8 Since it is difficult to include all aspects of banking regulation in the primary legislation, government entities or banking regulators typically are given the authority to issue a variety of secondary legal instruments, such as regulations, by-laws, or directives to effectively implement the law. The contemporary legal framework for Myanmar’s financial sector consists of laws and amendments passed by the Union Parliament, and regulations, directives and instructions that are issued by the Central Bank of Myanmar (CBM). Myanmar has a bi-cameral parliamentary system where the Pyidaungsu Hluttaw (Union Parliament) is made up of two Hluttaws (Houses). The Pyithu Hluttaw (Lower House) is formed by 440 members, of which 330 (75% of total seats) are elected, while the remaining 110 seats are reserved for military person- nel nominated by the Commander-in-Chief of the Defence Services. The Amyotha Hluttaw (Upper House) has 220 representatives, of which 168 (75% of total seats) are elected in an equal number of 12 representatives from each Region or State, inclusive of relevant Union territories and including one representative from each Self-Administered Division or Self-Administered Zone, while the remaining 56 seats are reserved for military personnel nominated by the Commander-in-Chief of the Defence Services. All legislative proposals must be brought before the Hluttaw in the form of Bills. There are two types of Bills which are called Government Bill (Public Bill) and Private Bill. Bills may be introduced in either Pyithu Hluttaw or Amyotha Hluttaw, subject to the provision of the Constitution. Under Section 100 (b) of the Constitution, the three kinds of Bills, namely national plans, annual budget and taxation, shall be submitted exclusively by the Union Government and discussed and resolved at the Pyidaungsu Hluttaw according to their respective procedures. 9 During the first 30 months of the current administra- tion, from January 2016 to July 2018, a total of 95 laws 22 were enacted (Patron of Pyidaungsu Hluttaw or joint parliament Mahn Win Khaing Than’s speech, Mal 2.08.18). Laws affecting the financial sector are listed in Box 2. Box 2: Laws affecting the financial sector of Myanmar • Auditor General of Union Law 2010 • Foreign Exchange Management Law 2012 • Amended Foreign Exchange Management Law 2015 • Central Bank of Myanmar Law 2013 • Anti-Money Laundering Law 2014 • Myanmar Accountancy Council law 2015 • Financial Institutions Law 2016 • Myanmar Companies Law 2017 The most formative laws for the contemporary banking sector are the Central Bank of Myanmar Law 2013, the Financial Institutions Law 2016, the Foreign Exchange Management Law 2015 and the Anti- Money Laundering Law 2014. Central Bank of Myanmar Law The Central Bank of Myanmar Law (CBML), enacted on 11 July 2013, made the Central Bank an independent institution with its governor being at ministerial level. The CBM is given the responsibilities of imple- mentation of the country’s monetary and exchange rate policies as well as regulating and supervising the banking sector. The CBM has the authority to issue secondary legal instruments for banks and certain financial institutions. In Myanmar’s financial sector, regulations and directives are the most common instruments. Regulations can be signed by the Governor of CBM or at Deputy Governor level and are typically announced by notifications, while directives are signed by the Director Generals in their
Chapter 2 – Regulatory and Supervisory Framework respective Departments on behalf of the Governor or the Deputy Governors. In Myanmar sometimes the Governor or the Deputy Governor also sign the directives in more urgent cases. 10 Financial Institutions Law The Financial Institutions Law (FIL), which was passed by parliament on 25 January 2016, is the cornerstone of the current government’s banking sector reform. It aims not only to develop and stabilize the financial sector but also to protect the depositor’s interest. Moreover, it tries to meet best international practices in accordance with the Basel Core Principles issued by the Basel Committee on Banking Supervision. The law grants the CBM wide-ranging powers to supervise banks and non- bank financial institutions. It encourages the practice of good corporate governance in banks, and pro- motes transparency and accountability as well as the modernization of the national payment system. Furthermore, it offers clear exit strategies for banks, should they become non-viable. This law and its associated rules and regulations will profoundly re-shape the framework conditions under which banks operate, develop and innovate. In addition, the FIL was the basis for seminal regulation issued by the CBM on Mobile Financial Services. Under the FIL, financial institutions are classified as Banks, Development Banks, Non-Bank Financial Institutions and Schedule Institutions (such as insurance companies and micro-finance institutions). While the CBM takes over the role as the regulator and supervisor of the banking sector, the Ministry of Planning and Finance (MOPF) has the responsibility to supervise state banks, and regulate and supervise insurance companies and microfinance service providers. The FIL outlines various banking functions that have to be approved by the CBM before becoming effec- tive. The following requirements highlighted in the FIL must be met by all banks, including foreign banks: License – To apply for a banking license under the FIL, the business entity must submit the necessary documents, including evidence of being a com- pany or an entity incorporated under the laws of Myanmar (Myanmar Companies Law). Foreign banks can only apply for a license to conduct banking business through a subsidiary or a branch. They need to submit not only documents that are required for domestic banks but also other documents such as a credit rating report and a statement of their capital position. According to directive No. (2/2017), the license fees for domestic and foreign banks are 0.1% of their paid-up capital, and the fee for establishing one branch is MMK 500,000. The annual fee for a local bank is 0.1% of paid-up capital on the 2nd of April and that of a foreign bank is 0.1% of its minimum paid-up capital (USD 75 million). Banking license holders have to commence operations within one year of licensing, comply with all conditions and the restrictions imposed by the CBM and carry out the activities permitted under FIL. Capital – The minimum paid-up capital is set at MMK 20 billion for domestic banks and USD 75 million for foreign banks. The law defines Core capital or Tier 1 Capital and Supplementary capital or Tier 2 capital. Their minimum ratios are stipulated in various directives of the CBM on capital adequacy ratios, with regulatory capital adequacy ratio being 8% and the minimum Tier I capital ratio 4% (cf. Annex 2). Reserves – For maintenance of a reserve fund, 25% of a bank’s net profits must be transferred to the reserve fund every year until it reaches 100% of the total paid-up capital. Loan Loss Reserve – Banks are required to maintain a general loan loss reserve up to 2% of outstanding loans and advances. Banking Activities – The activities that commer- cial banks are permitted to engage in are subject to any conditions and restrictions in the license. These activities include both, traditional activi- ties like acceptance of deposits and lending, and other activities such as foreign exchange busi- ness, e-banking and mobile banking. Restrictions – The restrictions on large exposures and lending to related parties are outlined in the FIL, while the detail restrictions are shown in the 23
Myanmar’s Banking Sector in Transition CBM’s Large Exposures Regulation (Notification No. 18/2017). Further restrictions refer to a bank’s acquiring or holding of shares of any company or enterprise; this shall not be more than 10% of the unimpaired capital funds of the bank, while the total ownership stake in another bank or non- bank financial institution is limited to 5% of that institution. Accounting, Auditing and Financial Statements – Every bank must maintain accounts and records, and prepare their financial statements to reflect its operations and financial condition, in accordance with internationally accepted accounting stand- ards. Banks have to set up an audit committee for establishing appropriate accounting procedures and accounting controls, and appoint a suitable external auditor for auditing the bank’s accounts. Foreign Exchange Management Law The Foreign Exchange Management Law was enacted in 2012 and amended in 2015. This law liberalized the foreign exchange market and lifted all restrictions on transactions in the current account of the country’s balance of payments. Moreover, private banks were allowed to open foreign exchange counters in October 2011, private non-bank money changers were legalized in December 2012, and an interbank foreign exchange market was opened in August 2013. 11 Banks granted a license to carry out foreign exchange business according to FIL need to comply with the Foreign Exchange Management Law and the directives that are based on this law. The law charges the CBM with the power to make foreign exchange policies and to facilitate the money market between banks operat- ing in Myanmar. In addition, the CBM has the power to issue prudential regulations related to foreign exchange operations and supervise institutions licensed to do foreign exchange business. The Foreign Exchange Management Law empowers CBM to announce the daily reference rate on the basis of the market exchange rate. After the remarkable devaluation of the Myanmar Kyat in August 2018, the CBM revoked the instruction to conduct buying and selling within 0.8% of the CBM reference rate. 12 As the greater exchange rate flexibility is needed to absorb external shocks and strengthen the country’s external position, on 13 August 2018, the CBM announced abolishment of exchange rate bands on its daily reference rates, which is a significant reform measure to move towards market determined floating exchange rates. Box 3: Myanmar’s exchange rate issue The exchange rate plays a vital role in an economy. It is the price of foreign currency in terms of domestic currency and vice-versa. The exchange rate links the domestic economy with the rest of the world through goods and assets markets. A stable and predictable rate regime facilitates a country’s favourable performance in international trade and payments. Since April 2012 Myanmar has a managed floating exchange rate system, replacing the previous peg to the IMF’s special drawing right (SDR). Under the managed floating exchange rate system the Central Bank of Myanmar (CBM) tries to influence the exchange rates of the Myanmar Kyat (MMK) by setting reference ex- change rates in terms of other currencies following daily foreign exchange auctions conducted with local banks that possess foreign exchange authorized dealer licenses and by allowing all foreign exchange dealers to buy and sell within the prescribed bands. On 11 May 2015, CBM issued an instruction stating that all money-changers including local banks have to buy and sell foreign currencies within the bands of +/- 0.8% of its daily reference rate. In order to avoid liquidity shortage problem, the CBM has set a net open position (NOP) of 30%. If an excess of a bank’s foreign exchange (forex) assets over its liabilities is more than 30% of its core capital, the bank is obliged to sell the excess forex to CBM. However, this is not strictly followed by the banks. Under the new Foreign Exchange Management 24 24
Chapter 2 – Regulatory and Supervisory Framework Law, there are no exchange restrictions on international payment transactions in the current account of the country’s balance payments. The US dollar (USD) dominates the Myanmar payment system. It is normally used to quote both, export and import prices. While the depreciation or appreciation of the local currency, MMK, against the USD does not change the external value of export and import goods and services, Myanmar’s importers and exporters will feel the difference. For example, if the Kyat depreciates from MMK 1,000 per USD to MMK 1,500, the export value of a ton of beans priced at USD 100 will increase by MMK 50,000 for Myanmar exporters. On the other hand, Myanmar importers would have to spend more MMK to get the same amount of imported goods. As Myanmar is still a developing country, a large volume of its imports are capital goods and intermediate goods which are essential for its development. 13 Hence the importance of the exchange rate for Myanmar’s development. The figure below shows the exchange rate movement of the MMK against the USD. After having stabilized for the first six months of 2018 at around MMK 1350 per USD, the local currency started to depreciate in June 2018. It depreciated by 3.7% within one month, mainly due to a USD shortage in the country. Banks are reluctant to sell their USD. Import prices for essential goods such as pharmaceuticals, construction material and fuel rise, which in turn fuels production costs and has an impact on the general price level in the country. The CBM started to intervene in the market on July 26. On 13 August, the exchange rate bands mentioned before were removed. On 23 August, CBM announced measures to solve the exchange rate problem and on November 8, CBM allowed foreign banks in the country to do all banking businesses with local corporates. These are major steps taken by the monetary authority. The positive impact of these measures may be seen in the relatively stable exchange rates after 12 October 2018. 1700 1600 1500 1400 1300 May June July August September October November Reference rate Market rate Source: CBM and Markets Figure 3 Myanmar Kyat Exchange Rates in 2018 (MMK per USD) 25
Myanmar’s Banking Sector in Transition Four major factors contributed to the recent decline of the value of the MMK against the USD: The USD became stronger in international markets against the background of a booming US economy and rising interest rates in the US. The comparatively high inflation rate in Myanmar reduced the purchas- ing power of the MMK even more than in other countries of the region. Myanmar’s rising external trade deficits is one of the most cited reasons for the decline in the external value of the MMK. The trade deficit has increased sharply from USD 1.8 billion in the Financial Year 2014–2015 to over USD 5 billion in 2015–2016 and 2016–2017, but it lowered to USD 3.8 billion in 2017–2018. Since April 2012, when CBM dropped the “Export First” policy which required export earnings before issuing import permits by the Ministry of Commerce, import bills have surged to meet domestic demand. On the other hand, due to the supply inelasticity of Myanmar’s exports, which mainly consists of agricultural and primary products, exporters’ ability to take advantage of price incen- tives in the international markets is limited. The rising trade deficit is too large to be offset by net receipts from services and income, producing a high current account deficit of 4–5 per cent of GDP in the Financial Year 2016–2017 and 2017–2018 (IMF 2017). Another possible factor are the limited investment opportunities in the country. Myanmar’s financial sector is underdeveloped and the Yangon Stock Exchange is still at its infancy stage. Since property and vehicle markets cooled down recently, investors and speculators turned to gold and the USD as a safe haven and hedge against rising inflation. The high dependency of Myanmar on the USD is another factor to be considered. The USD is not only important for external trade but also to express domestic prices, such as air fares or hotel charges. Moreover, it is the most promising store of value in the face of rising inflation and the most liquid profit-making asset for speculators. The CBM, responsible for maintaining price and financial system stability in Myanmar, has responded to the exchange rate decline by implementing various measures. On 13 August 2018, it removed the +/- 0.8 percent trading band, in realization that the band cannot be maintained with limited foreign exchange reserves. Since then the Myanmar Kyat has been allowed to freely float in the market while other measures to stabilize the exchange rate were taken. On 23 August 2018, CBM Deputy Governor U Soe Thein came up with a specific agenda for solving underlying problems, including a ban to purchase sugar and diesel from Thailand and Vietnam for re-exportation to China, stopping speculation in foreign currencies, solving structural problems causing external trade imbalances, injecting more USD from the country’s foreign exchange reserves into the market, and introducing a currency swap program for local banks where CBM will provide short-term loans in USD to local banks by accepting their local currency as collateral. In addition, on 8 November 2018 the CBM issued Instruction No. 6/2018 allowing foreign banks to provide all kinds of banking services to local corporations. Local business entities have now financial access to foreign banks and can borrow in USD and MMK. One of the main objectives behind this move is to ease the forex liquidity shortage in Myanmar through inflows from foreign banks. However, the detailed instructions for the foreign banks are still due to be elaborated by the CBM. In conclusion, we see that the CBM is trying to stabilize the exchange rates by taking necessary reform measures in the exchange rate regime. Addressing the exchange issue should be a well-articulated, sustainable and consistent program for a long-term solution. Short-term measures using quick fixes such as administrative actions on money-changers would not produce the required long-term solution but create distortions in the on-going process towards a market-oriented economic system. It would undermine the financial system by driving the foreign exchange business into the black market. It is vitally important for the monetary authority to adopt a sound monetary policy which instils a stable exchange rate system to serve the common interest of the country in the long run. 26
Chapter 2 – Regulatory and Supervisory Framework Anti-Money Laundering Law Since June 2000, Myanmar had been placed on the list of non-cooperative countries and territories of the Financial Action Task Force (FATF), the world leading body to fight money laundering and combat financing terrorists. 14 In its effort to avoid international sanctions on its financial system, Myanmar enacted The Control of Money Laundering Law (the State Peace and Development Council Law No. 6/ 2002) on 17 June 2002. Although the law created a framework for anti-money laundering measures, there were many FATF’s standard requirements yet to be met. Due to Myanmar’s failure to make adequate progress in implementing the Control of Money Laundering Law with the issuance of necessary by-laws, the FATF decided to apply counter-measures to Myanmar on 3 November 2003. 15 The purpose of these counter- measures is to reduce the vulnerability of the interna- tional financial system and to increase the effective- ness of anti-money laundering measures. During 2003–2005, the Myanmar banking sector faced serious money laundering problems with the US designation of Myanmar and its two local banks, Asia Wealth Bank and Myanmar Mayflower Bank to be of “primary money laundering concern” in November 2003. The consequence can be seen in the revocation of banking licenses from the two named banks in March 2005, and a few months later from the Myanmar Universal Bank. On 14 March 2014, the new Anti-Money Laundering Law (Union Parliament Law No. 11/2014) was enacted in line with international standards (Recommenda- tions of the FATF and Basel Core Principles for effec- tive Banking Supervision). The main objectives are to effectively combat money laundering and terrorist financing in the country; to deter meddling in the country’s management, politics, and social affairs using the money and property obtained by illegal means; to take AML/CFT measures in accordance with the International Convention Agreement; to cooperate with other countries and organizations combating money laundering and terrorist financing; and to issue necessary instructions and directives on AML/CFT to financial institutions. In its Section 68, under the caption of ‘Money launder- ing and the reporting of suspicious transactions’, the Financial Institution Law of 2016 stipulates that the CBM shall make regulations prescribing the specific procedures including reporting requirements under the Anti-money Laundering Law, Counter Terrorism Law and other related laws. As entrusted by Section 69 (C) of the Anti-Money Laundering Law and Section 40 of the Central Bank of Myanmar Law, the CBM has issued instructions on actions to be taken by financial institutions on money laundering and terrorist financing (CBM Directive No. 21/2015 dated October 2, 2015). On January 27, 2015, the CBM issued AML/CFT Risk-based management guidelines. In its manage- ment guidance note, the CBM suggests all banks in the country to develop effective frameworks and proce- dures to manage their money laundering and terrorist financing risks. Financial Reporting and Supervision Apart from the laws and their secondary instruments with regard to corporate financial reporting, the following laws play an important role in the legal and statutory framework: Auditor General of Union Law 2010; Myanmar Accountancy Council Law 2015; and the Myanmar Companies Law 2017. To successfully implement the various laws directed at the banking sector, the CBM releases regulations and directives as secondary instruments. Some of these instruments define prudential requirements in the form of key ratios and limits that have to be met by all banks (cf. Annex 2). The directives based on the FIL and released in 2017 are in line with the Basel I principles, such as capital requirements and risk weighted assets, and generally it can be accepted that Myanmar’s banking sector meets the Basel I principles. In addition, since the CBM has taken the supervisory role, it also fulfils the second pillar of Basel II referring to governance and supervi- sion. However, the compliance of banks with laws and regulations regarding the reporting of data to the CBM has been sluggish due to the banks’ data collection 27
Myanmar’s Banking Sector in Transition problems and inadequate accounting systems (Milken Institute, 2017). The Financial Institutions Supervision Department (FISD) within the CBM is responsible for the supervi- sion of local and foreign banks. It issues necessary instructions and conducts both, on-site examination and off-site monitoring. Off-site monitoring entails that the banks regularly report to the FISD (daily, weekly, monthly, quarterly and annually). On-site supervision is conducted at least once in two years and covers announced visits to the banks’ headquarters and branches in order to assess their internal control systems, corporate governance, financial data, AML/ CFT measures, and other compliances. If a bank is not in line with the CBM’s prudential ratios and limits, a penalty of one-fifth of 1% of the shortfall amount can be charged. The FISD intends to improve its oversight function by transitioning from compliance based supervision to risk based supervision. There are some overlapping responsibilities for the supervision and regulation of State-Owned Banks (SOBs) with the MoPF’s Financial Regulatory Depart- ment (FRD). SOBs are licensed by the CBM, and are required to abide by all CBM regulations; theoretically this means they are also subject to the same level of supervision from FISD as other banks, however, in practice the FRD maintains a strong level of oversight over SOBs. Adherence to accounting and auditing standards is a cornerstone of a sound and stable banking system. International Financial Reporting Standards (IFRS) are recognized as the global financial reporting standard, and Myanmar has adopted IFRS standards to advance the modernization and transparency of its banking sector. IFRS and International Standards on Auditing (ISA) were adopted in 2009. The Myanmar Accountancy Council (MAC), the regula- tory body for accounting and auditing standards in Myanmar, officially released a series of notifications on Myanmar Financial Reporting Standards (MFRS) and Myanmar Standards on Auditing (MSA). The MFRS for SMEs were released in 2009 16 and one year later for financial institutions, public companies and account- ants. 17 28 Regarding auditing, the MAC announced the Myanmar Standards on Auditing (MSA) in 2009, 18 followed by a second notification in 2010 19 legally requiring all Certified Public Accountants (CPA) to follow the stipulated standards. Hence, as of 2009, MFRS and MSA follow their international counterparts, International Financial Reporting Standards (IFRS) and Interna- tional Standards on Auditing (ISA). To fully implement IFRS principles, new instructions have been released by MAC in July 2018. According to the instructions, all Public Interest Entities (PIE) must adopt IFRS with the effective fiscal year of 2022–23, while adoption before 2022–23 fiscal year is encour- aged. Moreover, any business can apply IFRS for their company reporting system. All auditors will need to follow the International Standard on Auditing (ISA) by the 2022–23 fiscal year. Therefore, banks should be aware that IFRS will become fully applicable in reporting systems by the fiscal year 2022–23. While banks currently may have other challenges – such as meeting prudential require- ments, high NPL ratios and low profitability – the advantages of a transition to IFRS promise tangible rewards. If the banks adopt recognized international standards their data will be reliable and transparent, and it can support management and directors to make the right decisions for their banks. Furthermore, banks will be better positioned to attract more investments, including international investors. In 2017 the World Bank performed a Myanmar Report on Observance of Standards and Codes (ROSC) which stated there is a major compliance gap between the requirements of the accounting standards and actual practice across all types of enterprises. 20 In 2013, under the direction of the Office of the Auditor General of the Union (OAG), a multi-stakeholder committee was set up to strategically improve the implementation of a sound financial reporting framework for Myanmar’s banking sector. In 2015, the Country Strategy and Action Plan 21 was published by the committee, and, following its dissemination, the Banking Sector Financial Reporting Standards Imple- mentation Committee (BFRIC) was founded in 2016 to oversee and guide the IFRS and ISA adoption and implementation activities. Currently, BFRIC is en couraging and supporting the ongoing banking sector transition to implement IFRS.
The Myanmar Banking Sector 3 Sector Overview For almost fi ve decades the people of Myanmar and the country’s economy lived through an era of harsh restrictions under the rule of a military regime. International sanctions led to the isolation of the country. Since 2010, reform efforts by the Myanmar government and the opening up of the economy have triggered economic growth and high hopes for millions of low income households. The banking sector is one focus of the new government’s economic reforms.
Myanmar’s Banking Sector in Transition Despite its fast growth, Myanmar’s banking sector remains relatively small. Credit to the private sector was at 23.5% of GDP in 2017, one of the lowest values in the region (Fig. 2). The indicator fell remarkably during the banking crisis in 2003 22 and only reached its pre-crisis level in 2012 (Fig. 3). Credit growth was fast and peaked at 70% in 2009. An analysis conducted by the IMF 23 indicates the prevalence of a “credit boom” between 2010 and 2014. More recently, year-on-year growth rates slowed down, but remained at a high level of 25.15% in December 2017. 24 The fast credit growth raises concerns regarding the stability of the sector, espe- cially because the banks’ risk management capabili- ties have not increased to the same extent as their credit exposure. Domestic credit to private sector (% of GDP) 2010 2017 180 160 140 120 100 80 60 40 20 0 China Thailand Vietnam Malaysia* Cambodia Philippines Indonesia Myanmar Source: World Development Indicators *2016 value for 2017 series Figure 4 Domestic credit to private sector – regional comparison Myanmar’s banking sector today consists of four state-owned banks, 27 domestic private banks and 13 foreign bank branches. In addition, there are 49 representative offices of foreign banks listed on the website of the CBM. Figure 4 provides an overview about the banking market. Between 1963 and 1990, the banking system was completely state-owned. For this reason, state-owned banks (SOBs) remained dominant in the banking system until recently and they still offer most standard banking products. Private banks had been nationalized in 1963 and later amalgamated by the military regime. They only re-emerged after the enactment of the Financial Institutions of Myanmar Law (FIML) in 1990. The FIML also allowed foreign banks to maintain representative offices in Myanmar. The first licenses to nine foreign banks were granted in 2014. 32
Chapter 3 – The Myanmar Banking Sector As of December 2017, total bank assets amounted to 56.12 trillion MMK. The growth rates since 2012 are impressive but also very volatile, ranging between 176% in 2012-13 to 8% in 2014-15. The latest growth rate between March 2016 and 2017 was 23% (Fig. 5). Domestic Credit to GDP (%), Myanmar series pre-crisis level 25 20 15 10 5 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: World Development Indicators Figure 5 Domestic credit in Myanmar since 2000 CBM State-owned banks Domestic private banks Foreign banks branches 1. 2. 3. 4. Myanma Agricultural Development Bank Myanma Economic Development Bank Myanma Foreign Trade Bank Myanma Investment and Commercial Bank 1. 2. 3. 4. 5. Asia Yangon Bank Ltd Asian Green Development Bank Ltd Ayeyarwady Farmers Development Bank Ayeyarwady Bank Ltd Construction & Housing Development Bank Ltd Co-operative Bank Ltd First Private Bank Ltd Global Treasure Bank Ltd Innwa Bank Ltd 6. 7. 8. 9. 10. Kanbawza Bank Ltd 11. Myanmar Apex Bank Ltd 12. Myanmar Citizens Bank Ltd 13. Myanmar Micro finance Bank Ltd 14. Myanmar Oriental Bank Ltd 15. Myawaddy Bank Ltd Figure 6 Banking market of Myanmar 16. Nay Pyi Taw Sibin Bank Ltd 17. Rural Development Bank Ltd 18. Shwe Rural and Urban Development Bank 19. Small and Medium Industrial Development Bank 20. Tun Commercial Bank Ltd 21. United Amara Bank Ltd 22. Yadanabon Bank Ltd, Mandalay 23. Yangon City Bank Ltd 24. Yoma Bank Ltd 25. Glory Farmer Development Bank Ltd (G Bank) 26. Mineral Development Bank 27. Myanmar Tourism Bank ANZ 1. 2. Bangkok Bank 3. Bank of Investment and Development of Vietnam Bank of Tokyo Mitsubishi UFJ 4. 5. E-Sun Bank 6. Industrial and Commercial bank of China (ICBC) Malayan Banking Berhad (May Bank) Mizuho Bank Oversea-Chinese Banking Corporation (OCBC) 7. 8. 9. 10. Shinhan Bank 11. State of India 12. Sumitomo Mitsui Banking Corporation (SMBC) 13. United Overseas Bank (UOB) Source: CBM 33
Myanmar’s Banking Sector in Transition Private banks accounted for roughly 55% of total bank assets, 66% of deposits and 82% of loans, reflecting their strong growth in recent years. The market share of SOBs has decreased sharply over the past years. In terms of assets, it fell from 60% at the end of fiscal year 2015 to 44% in 2016 and only 34% as of December 2017 (Fig. 6). Total Assets 2012-2017 (Kyat in Million) and growth rate (in %) Total Assets Growth rate 60.000.000 50.000.000 40.000.000 30.000.000 20.000.000 10.000.000 0 200% 150% 100% 50% 0% Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Source: CBM Quarterly Financial Statistics Bulletins Figure 7 Growth of total bank assets (2012–2017) Banking Sector overview, September 2017, in bn MMK SOBs Private Banks Foreign Banks 60000,00 50000,00 40000,00 30000,00 20000,00 10000,00 0,00 Assets Deposits Loans Source: CBM Quarterly Financial Statistics Bulletin, 2017 Vol. IV Figure 8 Banking sector assets, deposits and loans as of December 2017 34
State-owned Banks There are four state-owned banks in Myanmar: the Myanma Agricultural Development Bank (MADB), the Myanma Economic Bank (MEB), the Myanma Foreign Trade Bank (MFTB) and the Myanma Investment and Commercial Bank (MICB). Although private banks today are more prevalent state-owned banks still play an important role in Myanmar. However, they urgently need to be reformed to improve their fi nancial performance.
Chapter 3 – The Myanmar Banking Sector After the nationalization of all banks in 1963, Myan- mar’s banking sector was completely state owned until 1990. This explains the important role state- owned banks (SOBs) still play in the market today. For instance, in March 2017 the MEB was Myanmar’s second largest bank in terms of assets and held approximately 16% of total bank deposits. Overview of SOBs as of 28.02.2017, financial data in million MMK MADB MEB* MICB MFTB Total Assets 1,397,940.40 7,576,196.22 3,387,507.02 3,831,914.92 Total Deposits 12,843.52 5,552,789.61 563,386.30 2,893,793.94 Total Loans 1,311,012.96 2,426,834.72 28,278.15 240,361.48 Branches 208 308 2 1 Table 1 Key facts on state-owned banks Source: CBM, Financial Position of Banks, Finance Companies and Foreign Bank Branches (2017) *at 31 March 2017 Yet, SOBs keep losing market share to strongly growing private and foreign banks. Their share in terms of assets has decreased sharply in recent years, from 60% in March 2015 to 34% according to the newest available figures (December 2017). SOBs used to benefit from a lack of public trust in private banks – especially after the bank crisis of 2003 – and held 44% of total deposits in March 2015. However, this number has fallen to 26% as of December 2017. Although the market share of SOBs in Myanmar is still higher than the average in the region, 25 these figures depict a clear trend which is likely to continue with strong growing private banks and foreign banks entering the market. 37
Myanmar’s Banking Sector in Transition Box 4: Myanmar’s state-owned banks The Myanma Economic Bank (MEB) is Myanmar’s second largest bank in terms of assets and holds a significant amount of total deposits. The bank was established in 1976 and operates under the Ministry of Planning and Finance (MOPF). MEB maintains 308 branches across the country. Founded when private banks were not yet allowed to operate, the bank still of- fers almost all classic banking products. It has the mandate to provide subsidized policy loans to other state-owned banks, cooperatives and state-owned enterprises. 26 The Myanma Agricultural Development Bank (MADB) was established in 1953 as State Agricultural Bank and is the main provider of loans to farmers in Myanmar. It serves around 2 million customers and over 10,000 villages across the country. 27 The bank provides seasonal loans for crop cultivation and term loans for the acquisition of farm machinery and equipment. In addition, the bank runs several programs for savings mobilization in rural areas. Although the loan amount per acre has increased considerably during the last years, it is still insufficient to cover production costs and repayment procedures are often not feasible for borrowers. 28 In 2017, MADB was moved from the Ministry of Agriculture, Livestock and Irrigation (MALI) under the remit of the MOPF. The current interest rate for loans is 8%. On October 20, 2018, MADB announced that it will extend more seasonal loans to farmers in 2018/19: paddy loans from MMK 100,000 to 150,000 per acre and other crops from MMK 50,000 to 100,000 per acre. It will extend agricultural loans by taking Form 7, a certificate of possession of the farm plot, as collateral. The lending programs are as follow: (a) Winter Loan (from October 26 – December 31, 2018); (b) Pre-Monsoon Loan (January 1 – March 31, 2019); (c) Monsoon Loan (May 2 – September 30, 2019). 29 The Myanma Investment and Commercial Bank (MICB) is a lot smaller than MEB and MADB, with 3.4 trillion MMK of assets as of February 2017. It was set up in 1990 to stimulate the growth of industry and production in the country. However, total loans of MICB amounted to only 28.3 billion MMK in February 2017, less than 0.2% of total bank loans. In addition to commercial banking services, MICB also provides international banking services like remittances in local and foreign currencies to its customers. The Myanma Foreign Trade Bank (MFTB) was estab- lished under the FIML in 1990 and is the legal successor of the Foreign Department of the State Commercial Bank. MFTB specializes in international banking and has a worldwide network of over 263 correspondent banks in 54 countries. Both the government and private customers keep their foreign exchange accounts at MFTB. 38
Chapter 3 – The Myanmar Banking Sector Myanmar’s four SOBs still offer most standard banking services, even long after the re-emergence of private banks in 1992. In general, there are two views on state ownership of banks. On the one hand, it can be beneficial in cases where SOBs undertake socially desirable investments and allocate resources to important sectors that would be otherwise under- served by the private sector. In the case of Myanmar, for example, the MADB is the main provider of loans to farmers who are rarely served by commercial banks. On the other hand, state ownership of banks can be inimical for competition and overall financial stability since misallocation of resources, operational inefficiencies and higher rates of defaults are often found within SOBs. 30 SOBs in Myanmar offer highly subsidized loans to selected sectors, especially to the state and the agricultural sector. 31 The latter is of great impor- tance for the economy and Myanmar’s people, accounting for more than 25% of GDP 32 and 50% of employment in 2017. 33 Yet, concerns remain that SOBs distort competition and crowd out private banks’ activities in these areas. 34 For instance, whereas only 14% of all outstanding loans in Decem- ber 2017 were issued by state-owned banks, loans from SOBs accounted for over 90% of all loans to the agricultural sector, excluding foreign banks. 35 In general, SOBs tend to have higher overhead costs and lower interest margins than their private coun- terparts, especially in developing countries. 36 Myanmar is no exception. The four SOBs struggle to keep pace with private banks. Common challenges include a lack of new technologies and modern IT infrastructure, operational inefficiencies, bad cus- tomer service, poor corporate governance, a lack of skills and unclear policy mandates. As of December 2017, the loan-deposit-ratio of SOBs was only 28.4%, compared to 67.4% at private banks. In addition, SOB lending to the private sector is disproportionally small compared to their overall market share. The country’s largest SOB, the MEB, for instance, has been making losses since 1988 37 and continues to be a source of fiscal risk. High operating costs resulting from the bank’s vast branch network and the low conversion of deposits into loans are the major reasons for the bank’s lack of profitability. The MEB lends only about 15% of its deposits to the private sector and has moved a large share of asset holdings to government securities. 38 This adds to the under- supply of the private sector with credit and creates further distortions in the banking sector as private banks directly compete with SOBs for deposits. In addition, SOBs allegedly have high NPL ratios (accurate data are not available). This is a potential threat to the stability of the financial system. 39 Although SOBs officially have to follow the same regulations as their private sector peers and report to the CBM, supervision of SOBs is weak and their performance is often not known to their owner, the MOPF. 40 Strict controls of SOBs on requirements such as NPL and capital ratios would be necessary to track their performance, reduce fiscal risk and strengthen overall financial sector stability. Despite the concerns raised above, SOBs remain important for the Myanmar banking system. They have a good public reputation (especially amongst the older generation), reflected by their large deposit base, and a vast branch network that is conducive to financial inclusion. Policymakers are therefore contemplating a more strategic role for SOBs con- tributing to the Myanmar development agenda. 41 This role should leverage SOBs’ considerable non- financial assets (brand recognition, broad outreach, etc.) and must be based on prudent fiscal manage- ment and sound economic rationale so that SOBs will be able to compete profitably with private banks on a level playing field. Reforming SOBs is stated a priority of the current Myanmar government. The improvement of the operations of state-owned enterprises and their privatization is part of the Economic Policy of the Union of Myanmar published in 2016. The World Bank supports the CBM and the MOPF in developing a policy framework for SOBs and also accompanies the development of restructuring plans for each of the four banks. However, advancement has been slow and much work lies ahead to improve profitability and transparency of SOBs. 42 This reform process will be critical to increase competition in the banking sector, reduce fiscal risk and ensure financial sector stability. 43 39
Private Banks Private banks have been banned by the military regime until 1992. As of November 2018, there are 27 domestic private banks operating in Myanmar. In September 2017, these banks held assets worth 48.5 trillion MMK (approximately 35.6 billion USD), about 67% of total bank assets. Private banks are the drivers for innovation and growth in Myanmar’s banking sector. However, asset concentration is high and most private banks are struggling to meet the new regulatory requirements.
Chapter 3 – The Myanmar Banking Sector Growth in the private banking sector is impressive. Between March 2012 and March 2017, its assets increased more than six-fold, and between financial year 2015/16 and 2016/17 private bank assets grew by 32%, whereas the amount of assets of SOBs stayed almost the same during that period. Yet, asset con- centration is high, with the three largest banks holding almost two thirds of total private banks’ assets, and the six largest banks of the country account for 82% of assets. Figure 7 shows the market share in terms of deposits of Myanmar’s domestic private banks. This picture changes only slightly when looking at assets or loans. 41% 17% 11% 6% 6% 6% 3% 3% 3% 1% 1% 2% KBZ AYA CB (41%) (17%) (11%) MAB (6%) Yoma (6%) MWB (6%) GTB UAB (3%) (3%) Others* (3%) AGD MOB (2%) (1%) Innwa (1%) Source: CBM *Including all banks with less than 1% market share: Myanmar Citizens Bank Ltd., First Private Bank Ltd., Small and Medium Industry Development Bank Ltd., Tun Commercial Bank Ltd., Shwe Rural and Urban Development Bank, Ayeyarwaddy Farmer Development Bank, Yangon City Bank Ltd., Rural Development Bank Ltd., Myanmar Microfinance bank Ltd., Yadanabon Bank Ltd. Mandalay, Asia Yangon Bank Ltd. Figure 9 Market share (deposits) of private banks in 2017 As of March 2017, private banks in Myanmar oper- ated 1,513 branches, of which 819 were owned by the top three banks. The amount of bank branches in relation to the population is still low in Myanmar, reflecting the low access of people to formal financial services. In 2016, there were 3.41 bank branches per 100,000 people, compared to 3.9 in Vietnam, 8.8 in the Philippines and 11.5 in Malaysia. 44 In addition, 41
Myanmar’s Banking Sector in Transition branch coverage is very uneven across regions, leaving especially rural populations widely unserved by private banks, although they keep increasing their branch numbers. Yet, new branches often operate at a loss, contributing to the low performance of Myan- mar banks that will be discussed later in this report. Moreover, whereas the number of branches is still considered an important factor favouring financial inclusion, it might become less important in the future when mobile money eventually takes off in Myanmar. Name of Bank Assets (in million MMK) No. of branches Kanbawza (KBZ) 11,309,440.96 Ayeyarwady Bank Ltd. (AYA) 4,173,888.62 Co-operation Bank Ltd. (CB) 2,713,104.21 Myawaddy Bank Ltd. (MWB) 1,664,990.68 Myanmar Apex Bank Ltd. (MAB) 1,592,427.20 Yoma Bank Ltd. 1,535,028.55 United Amara Bank Ltd. Global Treasure Bank Ltd. 866,604.46 706,194.06 Asia Green Development Bank Ltd. 560,216.38 Nay Pyi Taw Sinbin Bank Ltd. 445,487.32 Table 2 Assets and number of branches of 10 largest domestic private banks (as of fiscal year-end 2017) 42 430 206 183 49 86 69 74 130 56 6
Chapter 3 – The Myanmar Banking Sector Apart from the top 10 banks, there are several banks of very small size. Eleven private banks currently operating have a market share below 1%. These banks will likely find it difficult to survive in the market since they usually bear disproportionally high costs to be compliant with regulations and rarely can compete with bigger banks, unless they find a niche market. In a recently published report, international consultancy Roland Berger concludes that only the top three to five banks will shape the market in the short and medium term, together with foreign banks. 45 Total loans of private banks amounted to 18.5 trillion MMK (approx. 13.48 billion USD) in December 2017. Between March 2012 and March 2017, the amount increased almost sevenfold. The trading sector accounts for the largest share of loans from private banks, followed by construction and services (Fig. 8). 18% 37% 14% 12% 12% Trading Construction Services General Production Others* Hire Purchase (37%) (18%) (14%) (12%) (12%) (5%) (2%) 2% 5% Source: CBM Quarterly Financial Statistics Vol. IV 2017 *Others include Transportation, Agriculture, Housing, and SME Loans Figure 10 Private bank loans by sector, December 2017 Since the opening up of the economy in 2010, private banks took advantage of a booming private sector. In 2015, advances to the private sector by private banks accounted for 14% of GDP, while SOBs only contrib- uted 2.5%. 46 However, a number of restrictions still hinder banks to increase their lending activities. Usually, it is a bank’s task to appraise the risk of potential clients and set the prices accordingly. In a fixed interest rate environment, however, banks cannot price in their risk and hence tend to over-rely on collateral or generally restrict their lending. 47 In December 2017, 88% of collateral used to secure loans in Myanmar were land and buildings. 48 There are two direct consequences resulting from this over- reliance on collateral. Firstly, it makes banks vulner- able to large losses in values of these properties. As banks tend to only lend a maximum amount of 50 to 70 percent of the collateral value, this may however not be a major concern in the short and medium term. Secondly, high collateral requirements make it especially hard for smaller borrowers that do not own adequate collateral – such as SMEs and private households – to access bank loans. 43
Foreign Banks After the nationalization of the banking sector in 1963, foreign banks were not allowed to operate in Myanmar. It was only in 1990 that the government of Myanmar re-admitted foreign banks into the country. The number of licensed foreign banks has steadily grown, particularly over the last 5 years. As of November 2018, there are 13 foreign licensed banks and 49 representative offi ces of foreign banks in Myanmar.
Chapter 3 – The Myanmar Banking Sector As of December 2017, foreign banks’ market share in terms of assets was about 10%. The Industrial and Commercial Bank of China is the largest foreign bank with almost one fourth of foreign banks’ assets (as of March 2017). Foreign banks are still not allowed to offer Kyat fixed deposit accounts but they may accept foreign currency deposits. There is still no decision on whether or not interest may be paid on foreign deposit accounts. To receive a license foreign banks have to deposit a USD 45 million reserve at the CBM, money for which they do not receive any interest. Banking functions of foreign banks are limited. In the past they were not allowed to lend to local businesses unless they partnered with a local bank. However, reform measures are under way. Currently foreign banks are restricted to one branch, but the CBM has indicated that by 2019 they will allow foreign banks to expand their branch network. 49 In the past, foreign banks were only allowed to lend to foreign enterprises in foreign currency, but the recently passed CBM Directive No. (6/2018, November 8) permits foreign banks to lend to domes- tic businesses in Kyat and foreign currency. Interest rates for Kyat loans by foreign banks must abide by the maximum bank lending rate of 13%, however foreign currency loans may be priced at market rates. Other restrictions on foreign banks are in force, such as not being allowed to accept immovable property such as land and buildings as collateral. They are also not allowed to offer retail banking services such as personal savings accounts, money transfers and card services. 50 In general, foreign banks are found to be more efficient than local banks 51 and could contribute significantly to the development of the Myanmar banking sector. For instance, they could improve access to capital for undercapitalized local banks. Already, foreign banks account for a disproportionate share of the banking system’s capital. As of Septem- ber 2017, they held 44% of total equity capital. The new Myanmar Companies Act announced in August 2018 52 theoretically allows foreign banks up to 35% stake in local banks, potentially facilitating knowl- edge transfer and international best practices to the domestic banking sector. However, there is a poten- tial risk that domestic banks are not strong enough to withstand competition from foreign banks should they be allowed to operate freely. 53 In view of Myanmar’s integration into ASEAN, the pressure to open up the financial sector for foreign institutions will only increase. Possible effects on the banking industry and implications for individual local banks are discussed later in this report (refer to the last chapter of this report for more information). 45
Capacity Building and Supporting Institutions Backed by the banks’ strong demand as well as by political and economic liberalization, the supporting infrastructure for Myanmar banks is developing at a fast pace. This includes institutions like the Myanmar Banks Association, the Myanmar Payment Union and the emerging Myanmar Credit Bureau Limited, as well as numerous bank training and education providers such as the Myanmar Institute of Banking and the Yangon University of Economics. The fast growth of the banking sector translates into a huge demand for fi nance education and bank training. Several private training providers have been established to add to the rather low supply of university degree programs. However, the current supply of training is still not suffi cient to meet the future needs of the sector. Moreover, ensuring the quality of offered programs remains a challenge as long as there are no national quality standards set by the respective authorities.
Chapter 3 – The Myanmar Banking Sector The Myanmar banking sector is developing fast and requires an increasing number of qualifi ed staff to ensure its long-term viability. A recent report by the international consultancy Roland Berger estimates that 120,000 new jobs will be created in the sector until 2025. 54 This fi gure projects a huge increase in demand for education and training of bank employ- ees. In addition, as banks begin to offer more sophis- ticated products and services, the range of skills needed will diversify and international best practices will become more and more relevant. The government acknowledges the need for improvements in education to meet the demands of the fast-growing economy. Together with interna- tional partners, including GIZ, it developed the National Education Strategic Plan 2016-2021 and initiated a number of educational reforms. Public spending on education has increased steadily over the past years. While these efforts will hopefully pay off in the longer term, banks already struggle to fi ll vacancies with adequately qualifi ed employees. A market research conducted by the Myanmar Survey Research (MSR) on behalf of the GIZ fi nds that both, individu- als and banks name very generic skills, like English and IT knowledge, when asked about skills most needed in the banking sector. 55 This indicates a rather low prevailing level of qualifi cations. Interest- ingly, banks consider leadership skills as the most important qualifi cation for the current situation and the future. As for technical skills, respondents emphasize the importance of risk management and fi nancial analysis in the context of lending, including SME lending. 56 Other technical skills considered important by banks and individuals in the study include accounting and fi nancial reporting. Figure 9 summarises the results of the market research conducted by MSR. Skills needed currently Skills needed in future Individuals Organizations English IT skills Leadership Accounting Financial Analysis Risk managment Financial Reporting General Banking 35 % 39 % 35 % 26 % 30 % 43 % 29 % 17 % 23 % 14 % 22 % 19 % 15 % 10 % 13 % 14 % Leadership 56 % 54 % Sales and Marketing IT skills 46 % 32 % 42 % 28 % Accounting 14 % 40 % 40 % 42 % 36 % 52 % 36 % 14 % 30 % 30 % English Risk managment General Banking Financial Analysis Figure 11 Top fi ve perceived skills Source: MSR market research, 2018 47
Myanmar’s Banking Sector in Transition The results of an internal gap analysis based on the MSR market research and conducted by the Frank- furt School of Finance and Management, a globally recognized educational institution specializing in banking and finance, show that the existing supply of education and training for the Myanmar banking sector, both in terms of higher education as well as in the form of technical and vocational training, is not sufficient to meet current or future needs of the sector. 57 Only three higher education institutions – viz. Yangon University of Economics, Meiktila University of Economics, and Monywa University of Economics - offer degrees in Business Administra- tion, Commerce, Economics, Statistics and Public Administration, and only the Yangon University of Economics runs a Master of Banking and Finance program. Furthermore, the content taught at higher education institutions is often unrelated to practical work and teaching quality is far below the standards of the ASEAN Quality Assurance Framework for Higher Education (AQAFHE). The state-owned Yangon University of Economics (YUE) has been offering a three-year part-time Master of Banking and Finance (MBF) program since December 2012. Many local bank professionals have attended the MBF program and the demand for the courses far exceeds the available spaces. The GIZ provides support in developing the MBF curriculum and for training courses to MBF lecturers and students through integrated experts from Germany’s Deutsche Bank. In addition, GIZ supports YUE regarding their cooperation with Frankfurt School of Finance and Management to set up a Banking Education Program which will offer certificate courses on various topics, including Leadership, SME finance and IFRS-based accounting. 58 To close the skill gap and take advantage of a growing market opportunity, numerous private providers have emerged that offer training courses as well as undergraduate and graduate degrees through partner organizations. 59 Private training institutions such as the Myanmar Institute of Finance, PS Business School, the Myanmar Institute of Business and the Strategy First Institute are offering general business training courses also attended by bankers. John Partner Academy is a private banking training 48 institution and consultancy founded in 2016. Its faculties comprise experienced local bankers and international banking experts offering banking related seminars, technical trainings such as IFRS, risk management, and corporate banking, profes- sional development and soft skill training, and courses such as diploma in banking and diploma in business management. 60 Some of the private training providers offer interna- tionally recognized certifications such as AAT (Association of Accounting Technicians), ACCA (Association of Chartered Certified Accountants), CFA (Chartered Financial Analyst), and LCCI (London Chamber of Commerce & Industry) through their affiliations with accredited international institutions. For local providers, assessing the quality of their courses and certification programs is difficult; the absence of clear national quality standards and quality assurance mechanisms remains a challenge that influences the reputation of these programs. As a result, the response by banks is also ambiguous. Some banks have doubts that the training courses offered by private providers actually convey practical knowledge, and prefer in-house training; others are willing to send their employees to external training courses, and a few have even invested in the creation of private business schools. For instance, the Bank of Tokyo-Mitsubishi UFJ Ltd funded a learning centre at the Myanmar Institute of Banking and the Siam Commercial Bank launched, together with Thamma- sat University, a Bankers Academy (“Myanmar Banker Leadership Program”) for young and senior execu- tives. The Myanmar Institute of Banking (MIB) was estab- lished in 2002 and is a quasi-department within the Myanmar Banks Association. The MIB provides banking training, particularly for entry to mid-level management. Various training courses on general banking topics are being conducted at the MIB centre in Yangon. Courses include Diploma in Banking, Certificate Level of English for Banking and Finance, Principles of Practice of Bank Auditing, Certificate in International Trade and Finance and other banking related training courses.
Chapter 3 – The Myanmar Banking Sector The Myanmar Credit Bureau Limited was granted a license by CBM in May 2018 to become the first credit agency in Myanmar and is expected to begin its operation within one year. It is established as a joint venture between MB Investment Limited, a proxy company for MBA, and Asia Credit Bureau Holding Limited formally known as NSP Holdings Pte Ltd from Singapore, sharing 60:40 stakes respectively. The Credit Bureau will collect credit information of individuals and companies to provide credit ratings. It will sell this data to financial institutions for sound lending decisions. The International Finance Corpo- ration (IFC) has been supporting the bureau’s data collection on credit history and taxation and is assisting to build the required regulatory capacity at CBM. With recent relaxation of collateral require- ments by CBM and banks stepping towards cash-flow based lending, the Myanmar Credit Bureau will help increase access to finance and reduce credit risk to lenders. The Myanmar Banks Association (MBA) was estab- lished in April 1999 to provide a dialogue and lobbying platform for the domestic banking industry. MBA also cooperates with associations and banks on an international level. It currently has 31 member banks, including all four state-owned banks. Until early 2013, the MBA was chaired by the CBM Gover- nor, while representatives of local banks assumed vice-chairman and secretary functions. In September 2013, for the first time since its inception, the MBA elected a Board of Directors that is independent from the CBM. The current chairman of MBA is also the chairman of CB Bank. The Myanmar Payment Union (MPU) was established by Myanmar banks in the year 2011 to stand as a National Payment Switch for Myanmar, i.e., a system supporting non-cash payments originating from electronic channels such as ATMs, POS terminals, mobile banking, etc. Since 2013, banks and other stakeholders have been working together on expand- ing payment services, including internet and mobile banking. In January 2016, CBM-Net, Myanmar’s first real-time gross settlement (RTGS) was implemented. Large payment transactions can be made through CBM-Net, while the MPU provides the facilities for retail payments. 61 49
Services of the Banking Sector 4 Credit In response to restrictive lending regulations of the CBM, the Myanmar banking sector largely relies on overdrafts and land or buildings as loan security. Among other unwanted repercussions, this practice resulted in low lending to small businesses and uncertain credit quality. As CBM realised the associated risks it recently obligated banks to reduce the share of overdrafts in their portfolios by converting overdrafts to loans.
Myanmar’s Banking Sector in Transition Overdrafts Fearing a recurrence of the 2003 Myanmar banking crisis, the Central Bank of Myanmar (CBM) started imposing various restrictions on the banking sector in 2005, the most severe being Directive No. (1/2005), a requirement for loans to be secured by “strong” collateral and limiting term loan maturity to one year. At the same time, the deposits banks accepted, including fixed deposits, were mostly short-term. Though CBM’s restriction on loan maturity could prevent any maturity mismatch between short-term deposits and long-term loans, it failed to consider local businesses’ needs for long-term financing. To circumvent CBM’s one-year maturity restriction, borrowers and banks found overdrafts to be the most convenient way to extend credit for more than one year. Overdrafts in other countries are interest-bear- ing or fee-based short-term lending facilities linked with current accounts, and customers can borrow beyond the available fund in their current accounts up to an allowed limit. In Myanmar, however, overdrafts became open-ended credit facilities usually offered together with term-loans at the same annual interest rate. They get rolled over year by year, and in many cases without the banks even getting interest payments on the facility. As of today, the total outstanding number of overdrafts is estimated to be around 75 percent of the total banks’ loan portfolio in Myanmar. Such a large stock of over- drafts rolled over without maturity date could lead to underreporting of non-performing loans (NPL) on the bank books and carries potential risks for the stability of the entire banking sector. As CBM realised the risk associated with overdrafts, it mandated in the July 2017 Notification that starting from January 2018 banks are required to clear the overdraft facilities for two consecutive weeks annu- ally, and overdrafts that cannot be cleared would be classified in accordance with classification of loans under CBM Notification No. (17/2017). However, due to the newly mandated capital requirements and banks’ difficulty in clearing a huge number of overdrafts in such a short time, banks negotiated with CBM to relieve the overdraft requirements. As a result, CBM issued a follow-up Directive No. (7/2017) in November 2017, requiring banks to convert overdrafts to maximum three-year term loans and to 52 reduce the share of overdrafts in the whole portfolio of individual banks by 50% in July 2018, another 30% in July 2019 and a final 20% in July 2020. This new regulation on overdrafts will put a stop to the practice of rolling over loans and will highlight the accurate amount of NPL that Myanmar banks hold; thereby, the regulation may also encourage banks to comply with CBM Directive No. (5/2017) which stipulates a prudential NPL ratio of less than 5%. 62 Collateral Apart from the described overdraft culture, Myanmar banks also have a history of heavily relying on land and buildings to secure loans. From 2005 to 2011, banks were required by CBM regulation to take loan collateral and the only type of collateral they usually took from customers were immovable assets such as land and buildings. From 2011, the list of permitted collateral assets was expanded to include gold and jewellery, bank deposits, treasury bonds, machinery and some exportable crops. In November 2017, CBM even allowed banks to offer unsecured and partially- secured credit facilities based on the expected cash-flow of a borrower, with the condition that banks establish proper credit risk management systems. However, despite support from international organi- sations, including the GIZ, and some progress towards more unsecured SME loans, banks still largely prefer conventional collateral for various types of loans. Land and buildings still account for almost 90% of collateral applied to private bank lending, as shown in the figure below. Banks first access the forced-sale value of the collat- eral, and usually offer loans up to 50% of the forced- sale value of collaterals for land and buildings. They are reluctant to accept movable assets as loan security because there is still no relevant law or registry to track movable assets in Myanmar and these assets are not as liquid as immovable assets. The banks’ preference for land and buildings as collateral restricts access to financing, especially for
Chapter 4 – Services of the Banking Sector Land and Building (88,31%) Personal and Organisation Guarantee General Hire Purchase Fixed Deposit Machine and Merchandise (4,06%) (3,95%) (2,27%) (0,52%) (0,36%) Housing Loans (0,33%) SME Loans Gold Unsecure (0,17%) (0,03%) (0,00%) Source: CBM Quarterly Bulletin, 2017 88,31% 4,06% 3,95% 2,27% 0,52% 0,36% 0,33% 0,17% 0,03% 0,00% Figure 12 Private bank loans by collateral types (December, 2017) SMEs because most of their capital stock is in moveable assets such as receivables, machinery and equipment. To improve movable-asset based lending, IFC is providing support to Myanmar’s government to develop a secured-transactions framework that will encourage banks to accept more immovable assets as collaterals. 63 interest rate and other refinancing and subsidized loans at around 8.5%. Commercial and Consumer Loans Loan Product Development All banks in Myanmar offer similar commercial loans which can be generally categorized into three types. A directive issued by CBM in November 2017 stated that banks are encouraged to develop new loan products assessing client creditworthiness through cash-flow and business cycle analysis. Banks are required to submit the proposed loan products along with the corresponding credit risk analysis to CBM on a no-objection basis. However, CBM procedures for new product approvals are not standardized and the approval period is not yet clearly defined. In addition, banks face limitations on developing new loan products based on a borrower’s cash-flow since CBM has capped annual effective lending interest rates at 13%, which is lower than the perceived market lending interest rate based on credit risks associated with most businesses. Regardless, local banks price regular term-loans at up to 13% annual a b c Term loans with mostly full principal payment at the end of the loan term (usually 1-3 years) and quarterly interest payments with up to 13% annual interest rate; Hire-purchase loans for the financing of vehicles, heavy machineries, etc., where the wholesaler carries major part of the repayment risk; and One-year overdraft facilities where interest is only payable on the actually outstanding loan amount. Commercial loan products usually come with additional services such as cash and liquidity manage- ment and business advisory services. Businesses and 53
Myanmar’s Banking Sector in Transition corporations are required to pledge collateral to obtain commercial loans from banks. Though commercial loans such as term loans and overdraft facilities offered to businesses are restricted to 3-year and 1-year maturity respectively, banks are allowed to structure the maturity of consumer loan products offered to individuals based on the custom- ers’ needs and market demands. Since 2015, banks started developing more consumer loan products catering to specific customer needs, such as educa- tion loans, home loans and auto loans, as well as small-scale personal hire purchase, for instance, for mobile phones and laptop computers. Education Loans – SMID, CB and AYA banks started offering non-collateralized education loans around 2016 to graduate level students attending local private academic institutions. Education loans can cover up to 90% of the tuition fees with 13% interest rate per annum. In applying for such loans, students will have to prove that they have income or need a guarantor to sign the loan agreement for them. In July 2018, CB bank signed a memorandum of under- standing with the Singapore Institute of Manage- ment (SIM) to provide overseas education loans to Myanmar students studying at SIM. Domestic banks do not offer education loans to students from government universities, arguing that the tuition fees of government universities are significantly lower than those of private institutions; however, financial need is probably more prevalent among low-income students at government univer- sities, especially those from rural areas who can’t afford to pay accommodation and tuition fees. Car Loans – Most banks offer personal auto loans under their hire purchase product scheme. In November 2016, the Myanmar government has imposed restrictions on the import of right-handed vehicles and old model cars; since then, vehicle prices have been rising steadily. 64 However, demand for cars has not yet subsided. The market for new passenger cars has grown recently and several foreign car companies have opened assembly plants in Myanmar to produce latest-model cars. To fulfil the growing demand for cars, local banks have been 54 offering auto loans with minimum down payments of 30% of vehicle value and loan tenure up to 5 years for new cars and 2 years for used cars. Auto loans can only be applied for cars purchased at a bank’s author- ized dealers with flat interest rates around 8.5% and amortized interest rates around 13% per annum. Home Loans – Various banks currently offer home loans to retail customers, for example, Construction and Housing Development Bank (CHDB), KBZ, AYA, MCB and YOMA. Borrowers are required to contrib- ute 30 to 50% down payment; loans are charged at 13% net interest rate and the loan duration is up to 15 years for apartments, and 25 years for land, buildings and condominiums. In addition, the Japan International Cooperation Agency (JICA) signed an agreement with the Myan- mar government in March 2018 to supply 15 billion Yen worth of funding under JICA’s Housing Finance Development Project for providing housing loans to low and middle income households. 65 JICA first lent the funds to MEB at 0.01% interest rate, 10-year grace period and 30-year repayment period. CHDB, followed by other selected banks, in turn, will provide these loans to the buyers of low and affordable housing developed by the fund of the Department of Urban and Housing Development with 8.5% annual interest rate, 20% down payment and loan tenure up to 15 years. Although there is a growing demand for home loans in Myanmar, some banks are reluctant to launch home loan programs. One serious challenge is the lending interest rate cap at 13% that deters the banks from pricing long-term home loans in accordance with the higher risk associated with long-term lending. In addition, banks also find it difficult to structure products of 10 to 15 years maturity due to maturity mismatches. 66 SME Finance The SME sector is the backbone of the Myanmar economy and the crucial driving force behind the country’s economic development, as the approxi-
Chapter 4 – Services of the Banking Sector mately 120,000 SMEs account for more than 90% of all companies in the country. 67 The Myanmar government already acknowledged the importance of SMEs for the national economy and issued a SME Development Law in April 2015. 68 Despite of this importance, SME loans accounted for less than 0.2% of private bank loans in December 2017. 69 This restricts small enterprises’ ability to grow and most of them have to rely chiefly on their own funds to undertake investments (cf. figure below). 90 % 80 % 70 % 60 % 50 % 40 % 30 % 20 % 10 % 0 % Own capital Bank Other formal Friends / Family Other informal Source: MOPF (2018), based on Myanmar MSME 2017 data Figure 13 Source of financing for SME investments SME loans are much smaller in value than normal business loans. To qualify for SME loans, businesses are required to provide a SME recommendation letter and the SME member card from the SME Develop- ment Department under the Industrial Supervision and Inspection Department, along with all other necessary financial documents. Previously, SME registration took up to 6 months depending on whether a firm could provide the required documents, but as of August 2018, firms can register for SME smart cards online, which reduces the processing time to three weeks. SME smart cards are useful for trading within the region as they are certified in ASEAN countries. Business owners with SME smart cards can also have access to technical assistance, business courses, loan and marketing plans, and other facilities. 70 Although it is still difficult for SMEs to access bank loans, there are more financing opportunities these days, especially through the help of international organizations. The Japan International Cooperation Agency (JICA) has been supporting SME lending in Myanmar for several years. During the first phase of its “Two-Step Loan Program” from 2015 until 2017, JICA provided 55
Myanmar’s Banking Sector in Transition loans valued up to 4.7 billion yen to 269 local SMEs. 71 Funds were provided to MEB at 0.01% annual interest rate, which in turn on-lent to six selected private banks (KBZ, CB, MCB, MAB, SMIDB and AYA) at 4% annual interest rate. These retail banks then offer one-year loans to SMEs at 8.5% interest rate. In the second phase, starting in 2018, JICA lends 14.949 billion yen to MEB at 0.01% annual interest rate, 10-year grace period and 30-year repayment period. MCB, KBZ, AYA, CB, UAB, FPB and MEB are selected as partner banks to disburse loans to SMEs and borrowers that cannot provide collateral and can get loans under the Credit Guarantee Insurance (CGI) loan scheme. In April 2018, the Ministry of Planning and Finance signed an agreement with the German KfW Develop- ment Bank to grant funds of EUR 10.85 million for SME lending through the CB bank and the Myanmar Apex Bank. This is already the second phase of financing provided by KfW; the first phase started in 2016 with EUR 4.45 million for the CB bank. 72 With Myanmar Economic Bank (MEB) serving as a paying agent, KfW lends to the two banks at 3.5% annual interest rate, 5-year grace period and 10-year repayment period. SMEs can borrow KfW loans at 8.5% annual interest rate, with loan amounts up to 100 million Kyats and loan duration up to 5 years. Collateral is required for KfW loans and fixed assets purchased with the loan money can be pledged as collateral. In addition to the SME finance schemes of interna- tional organizations, the state-owned MEB has its own SME loan program, providing loans at 9% annual interest rate for a duration of 3 to 5 years. SMEs that can provide collateral can borrow up to 300 million Kyats, while those without collateral can borrow up to 20 million Kyats under the CGI loan scheme. 73 CB, KBZ and SMID banks use the Credit Guarantee Insurance (CGI) provided by Myanmar Insurance (MI) to provide secured and unsecured loans to SMEs. Under the CGI loan scheme, SMEs pay the required annual interest rate of 13% to the bank and an additional 2 or 3 percent insurance premium to MI, 56 depending on whether they have pledged collateral or not. SMEs can get collateral free loans up to 20 million Kyats with a repayment period of one year. If CGI loans get defaulted, MI will cover 60% of the loan value for the lender. As of May 2017, a total of 84 CGI loans have been offered to SMEs (80 from CB bank, 3 from KBZ bank and 1 from SMID bank). SMEs loans from most private banks require collat- eral, but some banks are trying to expand their SME financing towards unsecured cash-flow based lending. In June 2018, SMID bank launched its first-ever unsecured cash-flow based SME loan program that does not require collateral and credit guarantee insurance. SMEs can apply for three-year term loans up to 50 Million Kyat with an annual interest rate of 12% and 1% administrative fee. Banks face several challenges in expanding SME lending. They complain that at the current interest rate cap of 13% it is most often not viable to lend to SMEs. At the same time, they attest the willingness of their smaller borrowers to pay higher interest rates to get a bank loan and thereby not rely any longer on their own capital, or worse, informal money-lenders. Domestic banks hence urge the CBM to liberalize interest rates so that they reflect actual market conditions. The CBM, in turn, considers a sound risk management within the banks as a precondition for interest rate easing and is rather doubtful whether banks are ready for such a step. In fact, local banks do encounter problems with appraising the creditworthiness of potential borrow- ers. The credit information infrastructure of Myan- mar is highly underdeveloped. Although the CBM granted a license to the Myanmar Credit Bureau in May 2018, it will take time until its database becomes relevant for banks. Company and land registries also exist but are not available online, making it difficult for lenders to check whether a certain collateral is already used to take out another loan or otherwise impaired. A register of moveable asset pledges is currently under development. Last but not least, financial statements provided by companies are often not reliable and international auditing firms are not allowed to operate in Myanmar under current regulations.
Chapter 4 – Services of the Banking Sector Box 5: SME sector development by GIZ To support local banks in better SME financing, GIZ has been providing selected partner banks with technical assistance, training and capacity building under the Banking and Financial Sector Development Program (BFSD). During the first phase from 2014 to 2016, KBZ, YOMA and SMID bank were selected as pilot banks that were provided technical assistance by GIZ to establish adequate structures, procedures and strategies for SME finance. Several SME finance training modules were developed and more than 100 training sessions with over 2,200 participants were conducted in different SME finance related topics, including financial literacy training for SME owners. The collaboration between the three pilot banks and GIZ in the first phase has resulted in an increase of the combined SME loan portfolios of the pilot banks by a factor of three (in total over 13,000 SMEs were served). between clients and banks, GIZ will also provide training of trainers to more bank employees so that they can, in turn, conduct entrepreneurship and financial literacy training programs to their SME clients. As of August 2018, YOMA bank has established stand- ardized SME lending procedures which are made available to the branches. Dedicated specialist SME staff are being trained and will be located in every branch by the end of 2019. The bank also launched its SME Express Loan, which significantly shortens the loan application process. An innovative unsecured loan product has been developed by YOMA bank, which allows SMEs to use business contracts as alternative security for working capital loans. In the second phase (2017–2019), GIZ continued cooperation with YOMA and KBZ bank to provide more technical support in their SME financing development, while SMID bank continued unsecured cash-flow based lending to SMEs on its own. In collaboration with Wave Money – a joint venture between Telenor and Yoma Bank to provide mobile financial services via a nationwide agent network - YOMA bank is also offering unsecured loans to SMEs who are agents of Wave Money. Within the framework to promote sustainability of the achievements from the previous phase, GIZ is focusing on areas such as improving SME credit risk manage- ment processes and control mechanisms, maintaining SME loan portfolio quality of the pilot banks and training of bank-internal trainers. To close the gap KBZ bank has recently opened the One-Stop SME Banking Centres (OSBC) that provide comprehensive solutions to SMEs ranging from issuing SME certifi- cates, advisory and cash management services to capacity building such as financial literacy and business plan trainings. 57
Myanmar’s Banking Sector in Transition While these issues hamper banks to widely fulfil their role as financial intermediary, the CBM is willing to remove barriers for SME finance and engages in dialogue with domestic banks. In June 2018, the CBM hosted the first SME Forum in Nay Pyi Taw, co-organ- ized by GIZ, where representatives of the Myanmar parliament, the banking industry and SMEs jointly elaborated on different ways to improve SMEs’ access to finance, including adjusted risk weights, improved data collection, lending targets for SME lending and the establishment of an institutionalized mode for regular stakeholder consultations. Agricultural Finance About 70 percent of the population of Myanmar are living in rural areas and most of them depend on the agricultural sector. This sector contributes 35 to 40 percent of the national GDP and employs around two third of the labour force. Crops such as rice, beans and pulses constitute major exports. However, the agricultural sector remains largely underdeveloped due to the lack of technical know-how and insuffi- cient investment. Private banks are reluctant to offer agricultural financing because of the unpredictability of natural disasters and commodity price fluctua- tions. Crop and livestock insurance schemes are still in the experimental stage. Therefore, farmers’ credit access is very limited and most agriculture financing is offered by government institutions as subsidiary loans. The Myanma Agricultural Development Bank (MADB) is the largest agricultural lender in the country. MADB offers two types of loans: seasonal crop production loans (SCPL) and term loans. SCPLs cover the working capital needs of farmers at the beginning of the agricultural season and are divided into three categories: pre-monsoon, monsoon and winter loans, with monsoon loans constituting the biggest number of loans offered to farmers. SCPLs generally have one-year maturity and farmers are expected to repay the full amount at harvest time. Term loans, on the other hand, are categorized into short-term loans, farm machinery loans and special project loans. Farm machinery loans are offered with three-year maturity and require compulsory saving by the farmers. Special project loans are offered to rubber plantations under the government’s border area development projects. Most MADB loans, except for farm machinery loans, do not require collateral. Instead, farmers have to join a group of three to collectively guarantee each individual loan. MADB recently announced that starting from 2018 it will disburse loans on individual basis without farmers having to join groups for loan guarantees. The Japanese development agency JICA is providing 15,135 million yen worth of funds to support MADB lending facilities for farmers and agribusinesses; in addition, the agency provides capacity building assistance to MADB under JICA’s Agriculture and Rural Development Two-step Loan project. 74 The Myanmar Apex Bank (MAB) is leading agricul- ture financing among private commercial banks. It is also the first private commercial bank which extends loans to farmers for a period of up to three years. MAB allows farmers to have access to its loans by taking their certificate of ownership of farmland (Form-7) as collateral. The Form-7 certificate has been created with the enactment of the Farmland Law in 2012 by the Ministry of Agriculture and Irrigation. A pilot project between MAB and the Myanmar Rice Federation has provided a total of 1.6 billion MMK lent to 690 farmers for the current harvesting season. 75 While MADB offers loans up to 150,000 MMK per acre and charges 8% annual interest rate, MAB is offering loans to paddy farmers up to 400,000 MMK per acre at 13% annual interest rate. 58
Trade Finance Prior to 2012 trade fi nancing was monopolized by state-owned banks. Today, local banks provide fee-based services such as letter of credits, bank guarantees, and interest-bearing services including import fi nancing, and pre and post shipment export fi nancing. In December 2017, the Central Bank of Myanmar started allowing foreign banks to conduct export fi nancing, and in August 2018 foreign banks were permitted to start offering import trade fi nancing services.
Chapter 4 – Services of the Banking Sector Trade fi nance liberalization can provide more fi nancing opportunities for Myanmar traders. However, there are still some limitations for both, foreign and local banks. Although foreign banks with their expansive network, experience, capital and technology could easily facilitate Myanmar’s external trade, they face diffi culties in accessing local trade fi rms as many fi rms lack reliable and standardized fi nancial records and statements that foreign banks are accustomed to. Moreover, the lack of credit bureau information makes it diffi cult for foreign banks to assess the creditworthiness of local traders. This issue is also the reason why local banks only extend trade fi nancing facilities to their long-term corporate customers. Therefore, local exporters and importers, especially small and medium sized trading fi rms, fi nd it hard to get local bank fi nancing to promote their businesses in a sustainable way. A few local lenders have estab- lished trade connections with other foreign fi nancial institutions, but low credit ratings of local banks generally limit the amount of business they can underwrite, and many foreign banks still do not accept letter of credits from Myanmar banks. In addition, trade fi nance facilities are new to the local bankers and their limited expertise in trade fi nance, low IT capacities, scarcity of foreign exchange and poor risk management further impede external trade fi nancing to local trade fi rms. Furthermore, exchange rate risks and the lack of modern hedging instru- ments, such as swaps and forward contracts, make it often unattractive for local banks to enter the trade fi nancing business. To support local banks in trade fi nance, the Asian Development Bank (ADB) launched its Trade Finance Program (TFP) in Myanmar. ADB pledged up to USD 12 million in annual guarantees and signed a fi rst agreement with the CB bank in October 2015. In 2016, two more banks – the United Amara Bank (UAB) and YOMA bank – joined the TFP. The UAB receives guarantees worth up to USD 4 million each year for international letters of credit, while YOMA is provided with guarantees of at least 10 million USD annually to support trade, especially for local SMEs. Since ADB has an AAA credit rating, local banks participating in the TFP will be able to fi nance larger trade transactions. They will also be provided with capacity development support in risk management, trade fi nance products and operations, and fraud prevention. 61
Deposits Myanmar banks offer fi xed deposits, call deposits and current accounts. Deposit accounts are often tailored to serve different customers’ needs, for instance banks can provide, minor deposit accounts, sailor accounts, wedding deposit account and foreign currency deposit accounts.
Chapter 4 – Services of the Banking Sector Terms for fi xed deposit accounts range from 1 month to 3 years, with annual interest rates offered between 8 and 10 percent, while current accounts and foreign currency accounts generally do not bear any interest payments. Call deposit account interest rates are usually calculated based on the account’s day-end balance. The annual interest rate on call deposits was around 8%, like the rate for fi xed deposits. However, in January 2018 it was lowered to 2% by the Myanmar Bank Association as a coordinated measure among its member banks - although some banks deviate and still offer call deposits at 4% or 6% annual interest rate. Due to CBM instructions and the shortage and volatility of foreign currency in local banks, foreign currency accounts are generally more restricted in terms of depositing and withdrawing than local currency accounts. Foreign currency account holders are required to pay fees up to 2% of the foreign currency deposit amount, and do not have an opportunity to earn interest in accordance with CBM rules. Local banks also have exchange rates higher than regular market rates if the deposit to the foreign currency account is in local currency. Withdrawal fees for foreign currency accounts are either USD 1 or MMK 1000 depending on the bank. According to CBM Directive No. (16/2015), foreign account holders can withdraw USD 5,000 twice a week; government organizations, embassies, international organizations and foreign investment companies may withdraw more than the permitted amounts upon presenting an offi cial management letter with explanation for intended use and approval from the bank branch manager. 63
Remittances Approximately 3 million Myanmar nationals living abroad remitted around USD 3.5 billion in 2015, which was about 5.4% of Myanmar’s GDP in that year. 76 Although the exact fi gures for remittances into and out of Myanmar are diffi cult to estimate as a large proportion is transferred through informal channels, domestic and international remittances play a crucial role for Myanmar’s economy and poverty alleviation since people from poor rural areas are increasingly migrating either to big cities or neighbouring countries for work and send back money to their families.
Chapter 4 – Services of the Banking Sector Myanmar banks offer domestic inter-branch and inter-bank remittance services, telegraphic transfer and international fund transfer by SWIFT Code through corresponding banks, and international transfer through third party remittance service providers such as Moneygram, Western Union, Xpress Money, International Money Express, etc. Recently, there have been significant improvements in domestic remittance services by local banks through their e-banking and mobile payment platforms. However, banks face fierce competition from Mobile Financial Service Providers (MFSPs) such as OK Dollar, Wave Money and M-Pitesan, which, under the 2016 Mobile Financial Service Regulations, are only allowed to provide domestic remittance services to the public. MFSP accounts can be easily opened with MFSPs mobile applications without the need to open bank accounts, and retail customers can send up to MMK 500,000 per day between accounts from the same MFSP with no remittance fees charged. Although banks have been recently expanding their own networks through agent banking, convenience store chains and other means for their mobile payment platforms, it still is difficult to compete with the established expansive networks of MFSPs’ agents, ranging from 24/7 convenience stores, mobile phone service shops to various types of retail stores. For international remittances, 21 Myanmar banks have joined the Society for Worldwide Interbank Financial Telecommunication system (SWIFT). Through SWIFT, local banks can make secure, efficient and reliable financial transactions with their foreign correspondent banks. Recent years have also seen some relaxations on outbound remittance restrictions, especially with third party remittance providers. After 4 years of being active in Myanmar and providing only inward remittances, Western Union, for example, has launched outbound money remittance services in June 2016 – although with a transaction limitation of USD 3,000 per day and maximum USD 10,000 per year and customer. 77 While there are more options for international remit- tances in Myanmar these days, people still heavily rely on informal channels called hundi because migrant workers are often reluctant to go through official remittance channels due to their lack of legal immigration documents; hundi also is relatively cheaper and faster than official remittance channels. 65
Card Services Myanmar was ﬁ rst introduced to ofﬂ ine debit cards in 1996 by the Asia Wealth Bank, and by 2002, the Myanmar Mayﬂ ower Bank had installed 11 ofﬂ ine ATMs. The expansion of these cards and electronic payment services came to an abrupt end due to the 2003 banking crisis. It was not until 2012 that debit cards returned and three years later credit cards were introduced to the country. The Myanmar Payment Union (MPU) had a monopoly for issuing debit and credit cards for many years, but in January 2017, the government removed restrictions on international payment companies and allowed banks to issue co-branded cards with Visa, JCB, MasterCard and UnionPay International.
Chapter 4 – Services of the Banking Sector Today, local banks offer prepaid cards, debit cards and credit cards to the public. Credit cards are usually issued only to customers who meet certain monthly income requirements. Since the Credit Bureau is still in the process of establishment, credit information on new customers is not available and most banks tend to issue credit cards only to their existing customers. Interest rates on credit cards are capped at 13% per year (as per CBM Directive No. 11/2011) and additional service charges, such as joining fees and annual fees, are imposed. 67
Mobile Financial Services Myanmar has the highest mobile phone penetration in the region with close to 95% penetration rate. 78 Considering the huge unbanked population in Myanmar, with bank branches and services inaccessible in most rural areas, mobile fi nancial services have become an important means for fi nancial inclusion.
Chapter 4 – Services of the Banking Sector Financial exclusion still is a big challenge for the development of Myanmar, especially in rural areas. In 2017, less than 26% of the Myanmar population aged 15 years or older had an account at a formal financial institution. 79 However, due to the advancement of mobile financial services financial inclusion is increasing. According to the directives and regulations issued by the CBM, there are two models for operating mobile financial services in Myanmar: Bank-led Mobile Banking Services and Mobile Financial Service Providers. Bank-led Mobile Banking Services – CBM directive (No.4/2013) allows banks to operate mobile banking services under a bank-led model. Under this model, banks are required to obtain permission from CBM to operate mobile-banking services, either on their own or in partnership with a mobile money business, using technological support from Mobile Network Operators (MNOs) and mobile banking solution providers to develop mobile banking products and platforms. Banks may engage with Non-Government Organizations (NGOs), government post offices and MNOs as their cash points, agents or business partners. CBM allowed banks the following mobile banking services: a b c d e f Domestic remittances and international inward remittances; Debiting and crediting of cash in local currency via agents, bank branches, ATMs and mobile operator branches; Payments from individuals to business and vice versa; Payments from government to individuals and vice versa; Payments between individuals; and Repayment of microfinance loans and other small scale payments like insurance premium payments. For bank-led mobile banking services, the transaction limit is MMK 500,000 per transaction and MMK 1 million per day, with no more than three transactions in a day. Currently, there are five major bank-led mobile banking services in Myanmar, as shown in the following figure. Some banks also have their own branded e-banking platforms, as shown in the following figure: AGD Pay (Asia Green Deveopment Bank), CB Pay (Cooperative Bank), KBZ Pay (Kanbawza Bank), AYA mBanking (Ayerwaddy Bank) and MAB Mobile Banking (Myan- mar Apex Bank). These platforms are linked with the respective bank accounts and can provide remittance services, cash in and out services, within bank person-to-person payments, mobile top-up and bill payment services. Mobile Financial Service Providers (MFSPs) – The Regulation on Mobile Financial Services issued by CBM in 2016 laid out the foundation for the licensing and supervision of Mobile Financial Services Providers (MFSPs), which includes non-bank financial institu- tions and Mobile Network Operators (MNOs). MFSPs are required to directly apply for a Mobile Financial Service License from CBM, while in this model banks only serve as deposit taking institutions with addi- tional cash and liquidity management services for MFSPs. To apply for a MFSP license, the applicant needs to fulfil certain requirements, such as the provision of minimum capital of 3 billion MMK. 80 In December 2017, the CBM raised the maximum amount of a single transaction by level 2 customers from 200,000 Kyats to 500,000 Kyats and changed the cumulative transaction limits per month from 5 million Kyats to 12.5 million Kyats. As of August 2018, there are three licensed MFSPs in Myanmar, namely Wave Money, OK Dollar and M-Pitesan. In October 2016, Wave Money became the first MFSP to acquire a license under the non-bank financial institution licensing regime. As of August 2018, it is owned by four shareholders: Telenor (51%), Yoma Strategic Holdings (34%), First Myanmar Investment (10%) and Yoma bank (5%). Wave Money expanded its agent network from 5,000 in early 2017 69
Myanmar’s Banking Sector in Transition Major Bank-led Mobile Banking Services Myanmar Oriental Bank Bank-branded e-banking platforms Myanmar Citizen Bank AGD Pay AGD Bank CB Pay First Private Bank KBZ Pay Innwa Bank AYA mBanking Figure 14 Major bank-led mobile banking services in Myanmar MAB Mobile Bank 70 Figure 15 Bank-branded e-banking platforms in Myanmar
Chapter 4 – Services of the Banking Sector In addition, Myanmar government agencies are also planning to partner with MFSPs to improve their payment services. With such rapid developments, it is expected that MFSPs will soon be expanding their products to international remittances, loan payments and other forms of fin-tech services. However, until now CBM only allows MFSPs to operate the products listed in the 2016 MFSP regulations, and unlike other countries, Myanmar does not run a regulatory sandbox to test the risks and viability of new fin-tech products before going to market. Moreover, financial inclusion is impeded by a lack of interoperability that would allow transactions between accounts from different MFSPs, although it promotes fierce compe- tition between MFSPs. A new roadmap for financial inclusion (2018–2022) by Making Access Possible (MAP) 82 will be submit- ted to the Myanmar cabinet by the end of 2018. Amongst others, it will propose to create a digital services working group managed by CBM and the Financial Regulatory Department (FRD). This work- ing group will include representatives of private financial institutions, and screen and approve digital financial products case by case. to approximately 33,000 by September 2018. With over 2 million customers it holds the biggest market share among the three MFSPs. OK Dollar, owned by Internet Wallet Limited, operated without a license for more than a year and made headlines in the news for violating initial terms and conditions. However, there was no penalty from the regulators and OK Dollar was finally granted a MFSP license in August 2017. OK dollar currently has approximately 1 million registered users, making it the second largest MFSP out of three. M-Pitesan was launched by Ooredoo in September 2017. Within the first four months of its operation, the platform has already signed up 5,000 agents. MPT, the state-owned Telecom is also in the process of getting a MFSP license and will be launching its own products very soon. MFSPs have proven to be very innovative and rapidly expanded their networks and customer bases. Wave Money garnered a monthly revenue growth of 22% from January 2017 to January 2018, with 30% growth in transfer volume in the same period. 81 It intro- duced payment services for “Grab” drivers (online call taxis) who can take out their commission fees at Wave Money outlets. It has also partnered up with the World Food Programme of the United Nations to distribute monthly stipends to refugee families from the Kachin State border. OK Dollar has recently launched OK Taxi, where customers can request taxis through the OK Taxi app and pay the driver directly from their OK Dollar account. The drivers don’t need to pay any commission fees unlike other Taxi ser- vices, such as Grab and Oway. 71
The Regional Perspective Performance of the Myanmar Banking Sector in a Regional Comparison 5 Despite its rapid development, the Myanmar banking sector still remains the smallest market when compared with other Southeast Asian nations. The profi tability of Myanmar banks is weak, evidenced by low net interest margins and insuffi cient non-interest income. The fi xed interest rate environment adds additional challenges such as the inability to price risk which results in shortfalls in interest income and very low loan-deposit ratios. Moreover, there is a lack of modern banking infrastructure and reporting transparency. This is particularly troublesome when considering the country’s declarations to integrate into the ASEAN community.
Myanmar’s Banking Sector in Transition The Net Interest Margin (NIM) depicts the difference between interest income and interest expenses of a bank, relative to the average of its interest-earning assets. It is considered a good indicator for the effectiveness of a bank’s investment decisions. The figure below shows the average net interest margins for banks in selected countries of the region in 2016. The NIM in Myanmar is notably low when compared to other countries in the region as well as to the average NIM of other lower middle income countries around the world (dashed red line). Net interest margin (%), 2016 7 6 5 4 3 2 1 0 Cambodia Indonesia Lao PDR* Malaysia Myanmar Philippines Thailand Vietnam Source: Global Financial Development Database July 2018, World Bank Figure 16 Net interest margins of selected countries As the NIM only reflects a bank’s interest income, it is not identical with profitability which is also deter- mined by non-interest income as well as expenses other than interest payments. Yet, non-interest income in Myanmar accounts only for 8% of banks’ income, compared to roughly 19% amongst lower middle income countries. 83 The figure hence indicates a rather low profitability of Myanmar banks. NIM – ignoring for a moment the other important positive impacts a liberalized interest rate would have, e.g., allowing banks to price their own risks. The spread between the lending and deposit rate is fixed at 5% by CBM regulations. Although this value is lower than the average of 7.56% among lower middle income countries worldwide, it is not particularly low compared to other countries in the region (Fig. 17). The fixed interest rate environment and a low spread between lending and deposit rates are often stated by Myanmar bank representatives as major obstacles for profitability and reasons for low net interest margins in the banking sector. Indeed, a higher spread between lending and deposit rates would increase the potential profit margins and very likely improve their The real reasons for the notably low NIM in Myan- mar are likely to be low actually received interest payments and very low loan-deposit ratios. Since the majority of bank loans in Myanmar are still over- drafts and banks often do not collect interest pay- ments on these overdrafts, the actual received interest payments are low. Furthermore, defaults on 74
Chapter 5 – The Regional Perspective Lending-deposit spread (%), 2010–2016 Malaysia Indonesia Thailand Myanmar Vietnam Philippines 7 6 5 4 3 2 1 0 2010 2011 2012 2013 2014 2015 2016 Source: Global Financial Development Database July 2018, World Bank Figure 17 Lending-deposit spread (%) in selected countries between 2010 and 2016 interest payments directly decrease banks’ net interest incomes and therefore also make NIM volatile because banks in Myanmar still rely on cash based accounting, as opposed to accrual based accounting. The loan-deposit-ratio of Myanmar is at a compara- tively low value (below 60%, cf. figure 18), showing the banks’ difficulties or unwillingness to convert deposits into loans. Obviously, a low loan-deposit ratio does not only affect a bank’s profitability but also the opportunity for growth in the private sector as it translates into less funds available for the private sector as long as domestic banks struggle to increase lending. Reliable data on non-performing loans (NPL) in Myanmar is extremely difficult to obtain. Banks are typically under-reporting their NPLs due to the culture of using overdrafts. The nature of overdraft usage in Myanmar means that non-performing assets often don’t get classified according to the CBM’s rules for provisioning (hence prompting the recent CBM directive on overdraft conversion). The status of the banking sector overdraft conversion is also not publicly available, although the first conversion deadline has passed. Large-exposure loans (often also related party loans) are one of the big challenges facing the banking sector in Myanmar. Recovering from these NPLs will be as much a political challenge as a technical one. A decrease in loan default rates and an increase in loan-deposit-ratios would increase the profitability of Myanmar banks. So would potentially also the liberalization of interest rates. In a country where a credit bureau is not yet in operation and financial figures provided by potential borrowers are often inaccurate, lending is per se very risky for banks and the potential profit margins can quickly vanish due 75
Myanmar’s Banking Sector in Transition Loan to Deposit Ratios (In percent, ratio of banks‘ loan assets to total deposits) Indonesia Myanmar Nepal Thailand Papua New Guinea Bangladesh 140 120 100 80 60 40 20 0 2010 M3 2011 M3 2012 M3 2013 M3 2014 M3 2015 M3 2016 M3 2017 M3 Source: IMF’s Monetary and Financial Statistics. Figure 18 Loan-deposit ratios (%) in selected countries between 2010 and 2017 whole Southeast Asian region. And among lower middle income countries, RoA was 1.15% in 2015. All the issues mentioned above are also reflected in a very high cost-income ratio of Myanmar banks of more than 100% (indicating some banks must be loss making) compared to approximately 77% for other lower middle income countries (the red dashed line in the figure below). In addition to problems on the income side, both with respect to interest and non-interest income, this high value directly reflects the immense operating costs that result from an often vast network of branches which adds to the cost of funds, further dragging on the profitability of Myanmar banks. to a higher percentage of defaults on interest pay- ments. From this perspective, it seems crucial to allow banks to appraise their own risk and charge higher interest rates for higher-risk borrowers. Yet, as the low NIM of Myanmar banks likely reflects large amounts of loans outstanding to customers who are not willing or able to pay due interest, there seem to be issues with respect to the banks’ risk management also. In fact, an improvement in the risk management of banks and the processes for loan appraisals might be a precondition for a liberalization of interest rates to be viable, rather than the other way around. The above picture does not change when including non-interest income in the comparison. The Return on Assets (RoA) of Myanmar banks was 0.4% in September 2017, 84 one of the lowest ratios in the 76
Chapter 5 – The Regional Perspective 120 100 80 60 40 20 0 Cambodia Indonesia Lao PDR* Malaysia Myanmar Philippines Thailand Vietnam Source: Global Financial Development Database June 2017, World Bank Figure 19 Cost-Income ratios (%) for selected countries in 2015 To conclude, the performance of Myanmar banks is weak, both compared to other countries in the region as well as to other lower middle income countries in the world. A fixed interest environment limits the banks’ potential profit margins and hinders them from increasing their lending activities, the latter being further impeded by the focus on collateral for loan securitization. The notably low NIM is also likely the result of high rates of defaults on interest pay- ments which directly reduce net interest income. Under-reporting of NPL is also a significant factor to consider regarding the stability of the overall banking system. Improvements in banks’ risk identification and management might therefore be a precondition for interest rate liberalizations to be viable. In general, the banks’ assets are not efficiently used to generate profit, as reflected by a comparably low RoA. Apart from a non-optimal use of deposits to create interest- income, the low profitability of Myanmar banks also stems from high operational costs, primarily caused by the banks’ vast networks of inefficient branches. 77
Integration of Myanmar’s Banking Sector into the ASEAN Framework The Association of Southeast Asian Nations (ASEAN) is an intergovernmental organisation established in 1967. Today it comprises ten Southeast Asian countries. 85 Myanmar joined the association in 1997. Within the context of the ASEAN Economic Community (AEC) the fl ow of goods, services, capital, and skilled labour between the member states is gradually being liberalised. Financial sector integration under the ASEAN Banking Integration Framework (ABIF) is scheduled to begin in 2020. In preparation, it is expected that the CBM will gradually adjust fi nancial sector regulations. For Myanmar’s local banks, this will herald a new era of tougher competition with foreign banks and probably a painful consolidation process, but at the same time, potential for improved access to capital, banking infrastructure and know-how.
Chapter 5 – The Regional Perspective The push for fi nancial integration within the ASEAN framework has been on the political agenda since the Asian fi nancial crisis in 1997. However it took six years until the fi nance ministers of the ASEAN member states made a fi rst concrete step by agreeing on The Roadmap for Monetary and Financial Inte- gration in ASEAN. 86 Four years later, in 2007, the leaders of the ASEAN countries declared their intention to establish the ASEAN Economic Community (AEC) by 2015 in order to facilitate greater trade and investment fl ows in the region. For this purpose, they agreed on the AEC Blueprint, which outlines the liberalisation of trade and services at a regional scale, including fi nancial services. Specifi c goals set out under the AEC Blue- print include the progressive removal of restrictions on intra-regional provision of fi nancial services, harmonisation of regional capital market standards and capacity development support for ASEAN capital markets, mutual recognition of qualifi cations of fi nancial sector professionals, liberalization of capital accounts through the dismantling of account restrictions, and harmonisation of payments and settlements systems. 87 In 2011, the ASEAN Financial Integration Framework (AFIF) was agreed upon as a general approach to the fi nancial sector liberalisation and integration initia- tives under the AEC. This framework aims at having a semi-integrated fi nancial region by 2020, in which each member state would be allowed to defi ne its own milestones to achieve the common end goal of fi nancial integration. 88 As part of the AFIF, central bank governors of ASEAN member states created the ASEAN Banking Integra- tion Framework (ABIF) in December of 2014. 89 The ABIF aims at providing greater fi nancial stability in the region and achieving multilateral liberalisation in the banking sector by 2020. 90 In this context, ASEAN member countries have adopted the scheme of Qualifi ed ASEAN Banks (QAB), in which a bank qualifi ed in one jurisdiction will receive equal treatment in the others. To recognize the different levels of readiness among member states, the ABIF process specifi es two stages: a multilateral stage and a bilateral one. The multilateral stage will establish ASEAN-wide guidelines, while the bilateral stage involves negotiations between individual countries with regard to the admission of QABs in each other’s jurisdictions. Moreover, ABIF will be implemented at two speeds: fi rst among the fi ve larger ASEAN economies (Singapore, Thailand, Malaysia, Indonesia, and Philippines, which are dubbed ASEAN-5), and later including the other fi ve member countries. 91 In this connection, the ASEAN-5 should each have at least one QAB deal with bilateral agreement by 2018, and all other ASEAN countries should have one deal near completion by 2020. 92 Due to the disparity of economic and fi nancial sector development between the ten ASEAN countries, there are some diffi culties in the implementation of ABIF, especially in establishing the necessary precon- ditions for integration. Therefore, a high level committee (the ASEAN Senior Level Committee on Financial Integration, SLC) was established by the central bank governors of the member states to supervise the fi nancial integration implementation plan and the implementation process itself. The SLC agreed on important issues, including the need to form a group of banking experts, comprising the ASEAN Banking/Prudential Directors. This banking expert group serves as a task force which prepares the fi nancial integration goals and undertakes the specifi c and highly technical works, like setting priority actions and negotiating standard criteria for QABs. 93 For successful implementation of the ABIF, the central banks of the ASEAN member states have already made an agreement on four preconditions: (i) harmonising domestic regulations, (ii) building infrastructure to stabilise the fi nancial sectors, (iii) developing the banking capabilities of the so called BCLMV states (Brunei, Cambodia, Laos, Myanmar and Vietnam), and (iv) determining the criteria of QABs allowed to operate in all ASEAN member countries. 94 While fi nancial sector integration within the ABIF context promises obvious advantages for individual banks, customers and national economies – e.g., improved access to foreign markets, more foreign direct investment, stimulation of economic growth, 79
Myanmar’s Banking Sector in Transition more customer choice and better financial inclusion – there are also many related challenges and risks, such as: greater competition and unavoidable consolidation of the banking sectors to create economies of scale, and higher risk of cross-bound- ary financial instability spill-over effects. Therefore, ASEAN member states have committed to comple- ment the implementation of the ABIF with stronger regulatory and supervisory cooperation arrange- ments to ensure proper supervision of the QABs. 95 However, the varying pace of liberalisation and divergent regulatory frameworks among ASEAN countries may complicate cross-border mergers and therefore the necessary consolidation of the region’s banking industry. Moreover, since banks in the ASEAN region are mostly small by global standards they may not be able to compete with large multina- tional financial institutions. Therefore, reforms will probably be slow to materialise as national regulators proceed cautiously to ensure that domestic banks are strong enough to compete before they allow for full liberalisation. 96 There are unavoidable difficulties for ASEAN mem- ber states in their efforts to integrate their banking industries. While the most successful financial integration of independent states arguably is that of the European Union (or rather the Euro member states), ASEAN countries will have to take more time to achieve similar success because the economic and financial development of the ten member states is significantly diverse – despite ongoing efforts to reduce economic disparity in the ASEAN region in line with the AEC implementation. 97 In order to facilitate the implementation of banking integration, the ABIF Task Force was set up in 2011 with the goal to formulate milestones and timelines for financial liberalisation within the ASEAN banking sector. ASEAN-5 and BCMLV states have to take the role of co-chairs in a two-year rotation. 98 An ABIF Working Group with representatives of all ASEAN member states’ respective financial regulatory authorities has been organized to promote the banking integration under ASEAN financial inte- grated framework. The Data and Surveillance Taskforce under the Working Group is currently 80 chaired by the Central Bank of Myanmar and the Monetary Authority of Singapore. The CBM is charged with implementing the follow- ing activities in Myanmar for domestic preparation of the AEC 2025 goals: 99 a b Financial Integration - Capital Account Liberalization - Payment and Settlement System develop- ment - Capital Market Development Financial Inclusion - Carrying out the national financial inclusion roadmap - Fostering financial services via mobile banking and fin-tech - Training and education programs are arranged to obtain knowledge of financial inclusion and payment settlement systems. - Credit reporting system regulation has been issued to support capital for SMEs. c Financial Stability - Upgrading of on-site examinations and inspections, and off-site monitoring. - Transformation from rules-based to risk- based banking supervision - Development of IMF Financial Soundness Indicators (FSIs) Myanmar has also committed to working on bilateral reciprocity programs, in line with the ABIF. Currently, Myanmar is implementing bilateral programs with Thailand which is Myanmar’s largest trade partner and the second largest source of foreign direct investment amongst ASEAN countries. In 2016, the CBM and the Bank of Thailand signed a Letter of Intent (LOI) regarding a bilateral program in Nay Pyi Taw. This agreement intends to implement Qualified ASEAN Banks (QABs). The first bilateral meeting was held at the CBM in Nay Pyi Taw on the 6th of Febru- ary 2017. In that meeting, both countries explored which banks could qualify as a QAB, they also tried to determine the type of banks which could be operat- ing in both countries and discussed the minimum capital and prudential requirements. The minutes of
Chapter 5 – The Regional Perspective these meetings are not publicly available; however, it can be inferred that based on Thailand’s regulatory requirements there is a large capital adequacy gap between Myanmar and Thai banks. Until Myanmar banks can achieve the more conservative Thai prudential requirements, it is unlikely that Myanmar banks will be able to operate in Thailand. To penetrate the regional or international markets, the country’s current Basel Framework and level of IFRS compliance become crucial benchmarks for banks. The CBM has been implementing the Basel core principles and capital ratios that are partially in line with Basel II, whereas some ASEAN countries like Indonesia, Singapore, Thailand, Malaysia, and Philippines have fully implemented the Basel II framework and are focusing on Basel III implemen- tation. 100 The financial reporting framework in Myanmar’s banking sector is also in a slow transition. Although the Myanmar Accountancy Council has mandated IFRS compliance by 2022 accounting practices are not consistently applied in the banking sector. There are significant differences between prevailing accounting and prudential regulations in Myanmar’s banking sector and current IFRS. 101 This presents a huge barrier for Myanmar banks to get the QAB status. 81
Outlook by Prof. Dr. Dr. hc. Udo Steffens President (em.) Frankfurt School of Finance and Management CEO of Frankfurt Institute of Risk Management and Regulation 6
Myanmar’s Banking Sector in Transition This 4th report by GIZ on Myanmar’s Financial Sector Development presents the situation, latest achieve- ments and the challenges of banks in Myanmar. The banks operate in a national, regional and global financial system which continuously undergoes dynamic changes. The report presents a very impor- tant source of information for the public at large, policy makers, central bankers, supervisory institu- tions, bank managers, investors, international financial institutions and development agencies. The GIZ has to be commended for this continued effort. The report provides an holistic overview of the recent developments, the current situation, the strengths and weaknesses as well as the future potential of the banking sector in Myanmar. The stated facts and figures highlight the required patience and the indispensable strategic guidance, both on the system level and the bank level, to convert a “simple” banking system into a configura- tion where the potential of a steadily developing financial system is unfolded to serve clients, employ- ees, bank owners and society in multifold dimen- sions: social integration, financial inclusion, investments of short term deposits and mid to long term savings, financing infrastructure, providing credit in the demanded forms, terms and maturities, financing trade, connect the country financially to the world, financing innovation, and providing services. As far as supervisory policy and supervisory report- ing to the Central Bank of Myanmar (CBM) is con- cerned the report highlights the progress which has 84 been made so far. On the basis of the regulatory framework, reporting on compliance issues like anti-money laundering, anti-terrorism financing, capital requirements and risk management as well as the status of non-performing loans have been improved significantly. However, the CBM together with the Bankers Association should work on harmonizing and modernizing the reporting taxonomy. This will send clear signals to the banks and give less possibilities to work around the intended full transparency of the banking sector, especially with regards to non-per- forming loans. This would be a consequent next step after the introduction of International Financial Reporting Standards (IFRS). The Myanmar banking industry is in the early stages of ASEAN integration and deploys resources in order to better meet international best practices. Reporting standards on the basis of a modernized taxonomy serve the needs of the CBM, inform the top manage- ment of banks to support decisions and will be the basis for information to the public about the situa- tion of the banks to enhance confidence and sustain- ability. Moving forward will also require a technological transformation; cloud computing and cloud based databases should be considered. Inherent data security issues can be solved with innovative solu- tions. In a later stage reporting may also be supported and secured by blockchain technology. In this important field of the development the Myanmar banking system has the chance to leap-frog and to accelerate the journey towards a modern banking system which may not necessarily go through all the steps of development other banking system have gone through. The technology is available and it is far from being rocket science. In my opinion this is the way to go! The CBM should try to make the indispensable supervision of banks as efficient as possible in order to let banks concentrate on their business. To support future progress it should also think about the establishment of systems which are able to resolve a bank crisis. Bank failures happened in the past and
Chapter 6 – Outlook will happen again in the future. In order to protect the overall stability of Myanmar’s banking system and to avoid contagion rule based measures should be employed to ring-fence any idiosyncratic risk case. Profitability of banks is low as well. Reasons high- lighted in this report are: very low deposit into credit conversion rate, This report provides details about the current banking structure in Myanmar. Large and systemi- cally important state own banks, a few large com- mercial banks, and numerous small private banks are the main pillars of the system. Due to first steps of liberalization a growing number of foreign banks with strong equity bases but restricted scope of operations and a rather small share of total banking assets have entered the market. The total asset to GDP ratio of the Myanmar banking sector is still low, growth is strong though. The domestic credit to GDP ratio is correspondingly very low and additionally indicates that banks hold a high proportion of their assets in cash, especially the state owned banks. These findings correlate with the very low loan to deposit ratio of the banking system. This may indicate uncertainty aspects – banks prefer to have a large share of assets in cash in order to be liquid in a volatile environment and due to the lack of attractive lending opportunities. The strict interest rate regime imposed by the CBM and other non- market oriented restrictions on the credit market still prevail and prevent banks to unfold their full lending potential. Also, worries about inflation and the outside value of the national currency (mainly against the US dollar) induce caution in growing the credit portfolio. However, the overall volume of credit is growing faster than the GDP, showing that banks increasingly fulfill their economic role. Risk adjusted growth and capacity oriented expansion of bank services, especially the provision of credit should have priority above a fast and non-risk adjusted expansion. high non-performing loan ratios, regulated interest rate and overall credit regime resulting in a relatively low net income margin, poor efficiency, especially in state owned banks, and very high dependency on interest related busi- ness (credits) and subsequently a very small revenue stream coming from service fees. All of these factors lead to a cost-income ratio of more than 100%. For several years a global trend in the banking industry is obvious: the post crisis overall low interest rate environment of the leading currencies (US dollar and Euro) has increased the dependency on interest related businesses. Still the level of interest based incomes is under pressure. Other sources of revenue shape the capital markets (e.g., issuing and trading of financial products, mergers and acquisitions, and corporate finance) and provision based services like payments, credit cards or other additional services could not compensate this downturn. Myanmar cannot be an exemption to these global trends, even if its banking industry is only partially integrated in the global finance industry. However, a cost-income ratio of more than 100% is certainly not sustainable and action must be taken to bring that important indicator down. A few private banks already prove that it is possible and may be used as benchmarks for other banks. Globally, after the financial crisis in 2008 banks have been going through a period of adjustment. In mature economies, many financial institutions face low profitability and a decrease of their market capitalization, accompanied by lower employment and decreasing salaries. In Myanmar, the economic and regulatory environment remains challenging. The resulting better profitability of banks would allow for a rise of the equity base and prepare the banks better for national or international shocks from whatever angle they may come. Strong growth of the banking industry as a result of the growing economy of Myanmar and a comparatively low net income margin (measured against the Myanmar risk 85
Myanmar’s Banking Sector in Transition and legal framework) concerning the credit business may have seen vulnerabilities built up in the system. The phased introduction of IFRS, especially IFRS 9, focusing on financial services, will surely lead to great challenges underscored in this report (e.g., provision- ing for expected losses, transparent reporting on the status of non-performing loans). Nevertheless the introduction of IFRS provides enormous opportuni- ties. Adhering to internationally expected accounting standards is a prerequisite for embracing successfully the expected competition from foreign banks expanding their activities in the Myanmar market – as soon as the market will be more open, which is in turn a condition to be better integrated in the Asian (and global) market. The status and the prospected developments of the banking system detailed in this report will demand well-educated and trained employees. A sound and dynamic human resources strategy is indispensable. Human resources is one of the most important functional areas of a bank. Only well-educated and trained employees can face the supposedly higher competition in the future. Therefore, knowledge and skills of bank employees must be upgraded. New hires should be graduates from universities that try hard to have the most promising talents in their courses. As banking today is to some extent “applied infor- matics”, banks should encourage universities to train more IT specialists to support the modernization of banks. Also, the unavoidable further invasion of FinTechs will need more IT specialists to face those challenges and to take a fair share of these new services. The entrance of telecommunication companies into the banking market – using their networks to make banking transactions easily accessible and more affordable – heralds a new era of banking in Myanmar. This report gives a very good overview and ample details to portray the status quo of the development of the banking and overall financial system in Myanmar. The report may serve as a starting point for discussions on further strategic directions – both, on the individual bank and on the system level. It is of utmost importance to set the right incentives, advance adequate regulation and to develop effective risk management tools in order to support the stability of the system. Stability and accountability of banks will directly contribute to higher confidence in banks. Higher confidence will attract more clients and thus propel financial inclusion. A sound financial system remains one of the prereq- uisites for the improvement of a society in order to contribute to the global Sustainable Development Goals. 86
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Myanmar’s Banking Sector in Transition Annexes Annex 1: The legislative process in Myanmar Annex 2: Prudential requirements for banks in Myanmar Annex 3: Summary of Instructions for Commercial Banks Annex 4: CBM regulations on loan loss provisioning and loan classification Annex 5: Mobile Financial Services Regulations Annex 6: Institutions offering graduate degree programs Annex 7: Institutions offering diploma and certified programs Annex 8: SME Development Law of Myanmar 92
Annex Annex 1: The legislative process in Myanmar The process of Government Bills (Public Bills) Step 1 Under Section 100 (a) of the Constitution, the Union level organizations or line ministries have the right to submit the Bills relating to matters they administered. The line ministry initiates a Bill by obtaining opinions of legal and technical experts. As a first step, the ministry prepares the proposed legislation in Burmese and sends the draft bill to the Union Attorney General’s Office for opinions and recommendations. Step 2 The Union Attorney General’s Office reviews the draft Bill prepared by the line ministry and checks its format, wording and usage of legal and technical terms in the draft. Then the draft Bill is sent back to the line ministry with the recommendations of Union Attorney General’s Office. The line ministry rewrites the Bill. Sometimes, the draft Bill has to be rewritten again and again by taking into consideration all relevant facts and recommen- dations of respective stakeholders. After the draft Bill has been finalized, the Ministry concerned submits it to the Cabinet for its consideration and approval. The Cabinet considers it carefully and submits it to the Pyidaungsu Hluttaw (Union Parliament). Step 3 The Speaker of Union Parliament (Pyidaungsu Hluttaw) receives the Bill from the government and decides which house (either Lower House or Upper House) to start debating the draft. If the Pyithu Hluttaw (Lower House) receives the Bill from the Speaker, the Bill Committee of the Lower House makes necessary prepara- tions for submitting the Bill to the plenary session of the parliamentary assembly. First, it organizes meetings of discussion with relevant authorities and stakeholders including international non-government organizations (INGOS) and civil society organizations to consolidate different opinions on the Draft Bill. At this stage, public opinion is sought through public media. The Bill Committee prepares a report on the draft Bill by consolidating different opinion and views from different sectors. Step 4 On a fixed date, the report of the Bill Committee together with the original Bill is submitted to the Pyuthu Hluttaw (Lower House). One of the committee members submits the Bill before the parliamentary session. After submitting the Bill, Members of Parliament, who are willing to make suggestions on the Bill are invited by the Speaker. The Speaker fixes the date for discussion of the Bill. At the scheduled session, the Bill is thor- oughly discussed and resolutions are made on the discussions. Step 5 The Bill passed by the Pyithu Hluttaw (Lower House) is sent to the Amyotha Hluttaw (Upper House) for discus- sion and resolution. At this stage, the Amyotha Hluttaw may agree or disagree with amendments in accord with the resolution of the Pyithu Hluttaw. The Amyotha Hluttaw can make amendments in the Bill. The Bill shall be sent back to the Pyithu Hluttaw with the resolution of the Amyotha Hluttaw. If the Pyithu Hluttaw accepts the amendments of the Amyotha Hluttaw or if both Houses agree on all points in the Bill, the Bill is deemed to be approved by the Pyidaungsu Hluttaw (Union Parliament), which represents both Houses. The Bill is submitted to the Speaker of the Pyidaungsu Hluttaw for further process. 93
Myanmar’s Banking Sector in Transition Step 6 If both Houses do not agree with each other, the next step is to be discussed at the Pyidaungsu Hluttaw. The Joint Bill Committee reviews the differences and submits a report of its findings and recommendations on the Bill to Pyidaungsu Hluttaw for further discussion and resolution. The Pyidaungsu Hluttaw is the final authority where resolution is taken by a vote. Step 7 After a Bill has been passed by both Houses or the Pyidaungsu Hluttaw, it is submitted to the President for approval. If it is approved, the President shall sign the Bill into Law; if it is not approved, the President shall send back the Bill to the Pyidaungsu Hluttaw with comments. It is up to the Pyidaungsu Hluttaw whether to accept the President’s comments. After discussion of the President’s comments, the Pyidaungsu Hluttaw shall make its final resolution and send it back to the President to sign it into Law within seven days. If it is not signed by the President within the prescribed period of fourteen days after receiving the Bill, it shall automati- cally become law as if it is signed by the President on the last day of the prescribed period. The process of Private Bills The same procedure as for Public Bills applies to Private Bills, except that a Private Bill is initiated by a Member of Parliament (or a Committee). Examples of Private Bills are: the Law relating to overseas employment (The State Peace and Development Council Law No 3/99), or the Law relating to shops and business centers (2016 Pyidaungsu Hlaw Law No. 18). When the draft Bill is submitted to the Speaker (Patron) of the Pyidaungsu Hluttaw, she/he decides which house to start debating the draft. Any House assigned for debating the Bill shall accept or reject the Bill by a vote. If it is not accepted, it is ceased to become a law. If it starts with the Pyithu Hluttaw and if it is accepted, it is the responsibility of the Bill Committee of the Lower House to start rolling the ball according to the proce- dure mentioned above. 94
Annex PRESIDENT Submit to the President for approval/remarks Feedback from the President with comments within 14 days JOINT BIll COMMITTEE Submit for findings and remarks Disagree m ent betw een L H and U H UNION PARlIAMENT D is a g r e e m Submit to Upper House to discuss d U H w e e n L H a n e n t b e t UPPER HOUSE (Amyotha Hluttaw) Submit to Union Parliament after the Bill has been approved by both Houses to make record lOwER HOUSE (Pyithu Hluttaw) S t a r t t o d is c u s s a t U p p e r H o u s e Submit to Lower House to discuss Start to discuss at Lo w er H ouse SPEAKER OF UNION PARlIAMENT Entitle to submit the Bill Members of Parliament at Union Parliament, Union Government/Union Level Entities, Committees and Commission from Parliament (Hluttaws) Figure 20 The legislative process in Myanmar 95
Myanmar’s Banking Sector in Transition Annex 2: Prudential requirements for banks in Myanmar Capital adequacy (percentage of risk- weighted assets) Item Requirement Regulatory capital adequacy ratio Tier 1 capital adequacy ratio ≥ 8% ≥ 4% Reference Notification No. (16/2017) Paid-up capital (MMK) Item Paid-up capital (MMK) Requirement ≥ 20 billion Reference FIL – 34(a) Credit risk concentration Item Requirement Individual or group financial exposure ≤ 20% of core capital Aggregate of large exposure limit Not more than 8 times of core capital Unsecured exposure to another bank ≤ 100% of core capital Reference Notification No. (18/2017), FIL 59(a) Notification No. (18/2017) Notification No. (18/2017) Staff loans ≤ 5.0% of paid-up capital FIL 63(c) Market risk Item Requirement Reference Net open position (% of tier 1 capital) Not more than +30, not less than -30 Directive No. (14/2016) Restriction on Investment ≤ 10% of capital of bank Total ownership stake in another bank or NBFI ≤ 5% of that institution’s equity FIL 60 (b) FIL 61 (a) NPL < 5% Directive No. (5/2017) 96
Annex Liquidity Item Requirement Reference Minimum reserve requirement ≥ 5% of total deposit Directive No. (10/2015) Liquidity ratio (net liquid assets, % of volatile liabilities) ≥ 20% Notification No. (19/2017) Loan-to-deposit ratio 70%–80% of total deposit Directive No. (1/2008) Statutory reserve 25% of net profit, up to equal to 100% of the paid-up capital FIL 35(a) and Directive No. (1/2008) General provision 2% of outstanding loans and advances Standard (30 days past due) 0% Watch (31 to 60 days past due) 5% Substandard (61 to 90 days past due) 25% Doubtful (91 to 180 days past due) 50% Loss (over 180 days past due) 100% Not more than 50% (6-7-2018) Not more than 30% (6-7-2019) Not more than 20% (6-7-2020) Requirement 10% p.a. 8% p.a. 13% p.a. Notification No. (17/2017) Notification No. (17/2017) Directive No. (7/2017) Reference Directive No. 10/2011 Directive No. 11/2011 Within 2% and 6% p.a. (MBA, 2017)* Requirement Reference maximum 50% of forced sale value** - maximum 80% of the assessed value Directive No. (27/2012) Specific provision Overdraft ratio Interest rate Item CBM reference rate Minimum Deposit rate Minimum lending rate Call deposit interest Type of collateral Item Land & Building Treasure bond Saving and Fixed deposit maximum 80% of outstanding savings Directive No. (24/2011) Gold maximum 75% of assessed value for only 1-year term Directive No. (22/2011) Machines and Crops maximum 60% of the assessed value Directive No. (25/2011) Source: GIZ -BFSD collection * this rate was determined by a discussion of the stakeholders of the Myanmar Bank of Association (MBA). ** the banks have already been instructed to make loans with collaterals since 2008 so that land and buildings are taken as securities, and the loan amount may vary among the banks. 97
Myanmar’s Banking Sector in Transition Annex 3: Summary of Instructions for Commercial Banks Year Instructions Particular Commentary Directive No. 1/2018 January 8, 2018 Term Loan conversion plan Directive No. 2/2018 January 8, 2018 To report Large Exposures • Interest rate shall be repaid quarterly basis. For principal repayment, up to one-year Grace period can be set. • 3 -year term loan reducing plan for large exposures shall be submitted to CBM by 31-3-18 Directive No.3/2018 March 8, 2018 Conditions for Branch extension • Banks have to complete the conditions such as contributions to its location, comments on security from local authority, approval for characteristic and strengtheness of bank, feasibility study, total branches of bank, security measures, when applying for opening branches. FE 1/452 August 13, 2018 Canceling CBM reference rate +/- 0.8% limit • Canceling CBM reference rate +/- 0.8% limit in forex trading Memorandum MaBaBha- 1/111(FEMD)/1/2018 August 7, 2018 To use Myanmar Kyats for Domestic Payment Settlement Memorandum FE-1/483 August 20, 2018 Information to apply Thomson Reuters Real-Time Reporting Solution Directive No. 4/2018 September 4, 2018 Amendment on direction of Dividend allotment Directive No. 5/2018 October 18,2018 Reminder for Money Changer and Authorized dealer License holders Directive No. 6/2018 November 8, 2018 Foreign banks are allowed to lend to local cooperates. • Related ministries, Region/State Governments, Naypyitaw Council, Yangon City Development Council, and Mandalay City Development Council including private entities are instructed to deal with Myanmar Kyats for Dome- stic settlements. • Thomson Reuters is authorized to report currency trading at AD banks in the Interbank FX market, with the application of Real-Time Reporting Solution. • Dividend can be made by way of cash as well as issue of share including bonus share. • Bonus share can be made only from the retained profit. • Dividend should not be paid from share premium. • License holders are reminded to avoid the performances that harm the stabi- lity of economy or distrust the currency mechanism or destabilize the exchange rate by speculation, etc. • Foreign banks are allowed to per- form any financing and other banking services to local corporate. 2018 98
Annex Directive No. 2/2017 January 26, 2017 License fee, charges and annual fee • License fee - 0.1% of the paid-up capi- tal • Charges for opening branch 500,000 MMK • Annual fees for Local Banks - 0.1% of paid-up capital as at 2nd of April • Annual fees for Foreign Banks - 0.1% of paid-up capital (US$ 75 million) Memorandum Mababa- 1/111(FIS)/216/2017 February 20,2017 Instruction on Loan Interest Rate Collection • Maximum loan interest rate must be 13% p.a. including services charges Directive No. 4/2017 March 7, 2017 Instruction on Credit Risk Ma- nagement • To make the Credit Risk Management Framework covering identification, measuring, assessing, monitoring, reporting and controlling or mitigation • To report policies and procedures of credit risk management to CBM Directive No. 5/2017 March 7, 2017 2017 Directive No.6/2017 March 7, 2017 Dividend Payment • A bank shall only pay dividends if - CAR is maintained 8% in current financial year and last two years - NPL/total loan ratio is less than 5% - meet general provision and specific provision Revaluation of Assets • To revalue the Bank‘s Assets: Notification 5/2017 March 31, 2017 Regulation on establishment of Credit Bureau and Credit Reporting System Notification No. 16/2017 July 7, 2017 Capital Adequacy Ratio (CAR) Regulation - the assets to be revalued should be under the name of the Bank - revaluation can be done by profes- sionals from internationally recog- nized valuation firm - revaluation of assets may be done once in five-year term • Regulation on establishment of Credit Bureau and Credit Reporting System • Regulatory CAR ratio 8% Tire 1 (Core Capital) ≥ 4% Tire 2 (Supplementary Capital) ≤ 4% 99
Myanmar’s Banking Sector in Transition Notification No. 17/2017 July 7, 2017 Asset Classification and Provisio- ning Regulation • Adequate provision for impairment of loans, advances and other assets are to be made against all outstanding balance (principal and interest) of the loans and advances, not just the past due portion • Specific Provision for loans and advances Prov. On shortfall 0% Std. 5% Watch 25% Sub-Std. 50% Doubtful 100% Loss • Banks are required to maintain general 30 Days past due 31–60 61–90 91–180 over 180 provisions up to 2% of total outstan- ding loans and advances. • Interest earned on loans and advances which are classified as doubtful or loss shall only be recognized as income when the interest has been collected by the bank. • Lending to an individual or a single counterparty or group of connected counterparties shall be not more than 20% of the core capital. • Unsecured transactions are limited to 100% of core capital of the bank. • The aggregate of all large exposure of a bank shall not exceed 8 times of core capital. Notification No.18/2017 July 7, 2017 Large Exposures Regulation Notification No.19/2017 July 7, 2017 Liquidity Ratio Requirement Regulation A bank shall maintain a minimum liquidity ratio of 20%. 2017 100
Directive No. 7/2017 November 24 2017 Implementation of Asset Classification and Provisioning Regulation 2017 Directive no. 8/2017 November 30, 2017 Amendment on Para 17 (c) of Mobile Financial Services Regulation Directive No. 10/2017 December 8, 2017 Amendment of Liquidity Ratio Calculation Annex • Banks can extent overdrafts and loans with maximum maturity of 1 year and 3 years respectively. Additionally, banks are encouraged to develop new lending products that consider the business cycle and cash pattern of the borrowers. • Banks are allowed to convert the outstanding overdrafts into term loans maximum maturity of 3 years. How- ever, they are not allowed to convert non-performing overdrafts into term loans • Overdraft reducing schedule is as follows: (1) as of July 6, 2018 50% of total outstanding loan (2) as of July 6, 2019 30% of total outstanding loan (3) as of July 6, 2020 20 % of total outstanding loan • Operating limit amount amendment in daily and monthly. • 50% of total value of Treasury Bonds with more than one year maturity shall be included in calculation. Permission to foreign banks to expand related banking services for export financing • Foreign banks are allowed to expand related banking services for export financing To perform Foreign Exchange Account Opening in accordance with Law Directive No. 9/2017 December 8, 2017 Directive 2/2016 March 18, 2016 Regulation 01/03-2016 March 30, 2016 Mobile Financial Services Regulation 2016 Directive 3/2016 April 8, 2016 Permission to perform Bilateral Interbank FX transactions • If individual and company of the customers of the bank have overseas FE account, bank statements and balance are needed to report CBM in accordance with Section 14 and 15 for Foreign Exchange Management Law. • See in Mobile Financial Services regu- lation • Bilateral interbank FX transactions such as FX forward and FX SWAP tran- sactions are permitted to perform with 3 currencies up to 1 year. • Settlement can be made through CBM-NET for Myanmar currency transaction and CBM NET or corres- pondent banks for foreign transaction. 101
Myanmar’s Banking Sector in Transition Directive No.4/2016 April 8, 2016 Permission on Bilateral Interbank Lending Directive No.12/2016 September 29, 2016 Penalty for Shortfall on Minimum Reserve Requirement • Bilateral interbank lending can be made with Myanmar Kyats in the initial phase. • Interest rate is agreed by both parties. • Disburse with loan system • Disburse with or without collateral • T-bonds/bills or USD deposits are accepted as collateral • Exposure limit for uncollateralized interbank lending can be performed ≤ 100% of core capital • Loan transaction shall be performed in accordance with IAD 32 and IFRS 9. • Calculation on amount of penalty, Currency and percentage of penalty for shortfall on Minimum Reserve Requi- rement Memorandum No. FE 1/1077 December 5, 2016 Memorandum No. FE 1/1078 December 5, 2016 2016 Memorandum FE 1/1076 December 5, 2016 Directive No.14 December 27, 2016 Investment in abroad • To invest in abroad in line with laws Foreign Currency Account Opening in foreign countries Export proceeds is to be recorded at Exporters’ A/C officially • For Banks – to submit foreign currency account information and balance sheet of bank • For bank’s customer (individual and companies) – to report foreign curren- cy account and balance sheet • Foreign Exchange Authorized Dealer License holders need to check all ex- port proceeds during the set period as well as exporters are needed to inform to follow strictly. Net Open Position (NOP) • To maintain not occurring short positi- on for any currencies • To maintain not more than 30% of core capital of long/short position • To report the corrective action if the long/short position exceeds the CBM’s limit two consecutive days • To sell in Foreign Exchange Auction if NOP is over 30% • To report daily NOP update • See in guidelines on Risk Management of AML/CFT Memorandum January 27,2015 Guidelines on Risk Management of AML/CFT 2015 Directive No.10 February 17, 2015 Minimum Reserve Requirement • Minimum reserve requirement shall be 5% of total deposits. Directive No. 14/2015 March 9, 2015 Cash and worksite security of the bank • Instructions on vault, cash-in transit and worksite security of the bank. 102
Directive No.16/2015 May 27, 2015 Foreign Exchange Withdrawal Limit Annex • Instead of withdrawal once in USD 10,000, it is substituted with once in USD 5,000 twice a week. For > 5,000 withdrawal, transfer method can be applied. • For Govt, embassies, UN, NGO, any withdrawal can be made with strong evidence. Directive No. 17/2015 May 27, 2015 Permission to trade foreign currency • Allow to sell and buy two foreign cur- rencies – Ringgit and Baht Mababa-1/111 (FEMD)/ (904/2015) May 28, 2015 2015 To use Myanmar Kyat for Dome- stic Payments/ settlement • To use Myanmar Kyat for buying and selling goods and services of respective Ministries, the governments of States/ Regions Directive No. 18/2015 June 17, 2015 To sell Foreign Currency for im- ports via banks • To sell foreign currency for imports especially oil and edible oil via banks Directive 21/2015 October 2, 2015 Directive No. 22/2015 December 22, 2015 Directives on Due Diligence on Anti-Money Laundering and Counter Financing on Terrorist • See in Directives on Due Diligence on Anti-Money Laundering and Counter Financing on Terrorist To transact Foreign currency for all imported commodities via Foreign Exchange Auction and Interbank Foreign Exchange Market • To transact foreign currency for all im- ported commodities including oil and edible oil via FE Auction and Interbank FE market Regulation No. 1/2014 January 2, 2014 MFI Development Bank Regula- tions • See in MFI Development Bank regula- tions FEMD 1/2014 February 7, 2014 Currency Shipment Regulation No. 2/2014 February 18,2014 Construction and Housing Deve- lopment Bank Regulation CBM February 28, 2014 Appointment of Foreign Profes- sionals 2014 BS: March 10, 2014 Issuance of Bank Guarantee, Bid Bond, etc. BS: April 2, 2014 Margin taken for L/C • Authorized dealer (AD) banks are permitted to make currency shipment individually or collectively upon appro- val from the CBM. • See in Regulation on Construction and Housing Development Bank Regulati- on • Foreigner may be appointed as Advisor or Consultants • As to a permanent staff, foreigner shall be appointed as General Manager, the highest • AD banks may issue the bank guaran- tee, bid bond, etc. for loan and busi- ness. • AD banks may not take 100% margin for L/C opening. It is negotiable with the customer Notification 3/2014 July 30, 2014 Regulation relating to set up Farmer Development Bank • Seen in regulation relating to setup Farmer Development Bank Notification No. 7/2014 September 30, 2014 Foreign Exchange Management Regulation • Regulations on Foreign Exchange Management 103
To manage smooth and 24-hour cash withdraw from ATM • Banks are instructed to provide effective ATM services. Instruction to AD banks related to overseas financing • AD bank needs to get approval from CBM for getting overseas financing. • If FDI, either MIC permit or Certificate of incorporation from DICA shall be submitted with loan agreement, repay- ment schedule and purpose of loan. • AD shall keep the fund or borrowing brought in without approval from the CBM in the sundry account • Authorized dealer bank shall send the fund or borrowing which was not per- mitted by the CBM back to the sender bank • Private banks are allowed to accept long-term deposit other than current 3,6,9, 12 months period term • Loans can be extended without colla- teral if ministries and department issue guarantee • To keep minimum 50% of Paid-up capital as Free capital • To accept deposit maximum 10 times of paid-up capital • To accept 3-month, 6-month, 9-mongh and 12-month term fixed deposit. • Interbank borrowing is not allowed • Do not disburse loans with diamond, gold and pledge. • If banks lend out without collateral, 2% of net profit will be changed as fine. Myanmar’s Banking Sector in Transition BS: October 2, 2014 Capital Brought-in • Foreign company or Joint Venture Company shall inform and apply to the CBM with documents through AD bank for permission to bring the capi- tal into the country or the repatriation of these funds may be rejected Memorandum November 11, 2014 FE 1/535 December 12, 2014 2014 Directive No. 1/2013 May 8, 2013 Relaxation on restriction of Bank operations 2013 104
Directive No. 2/2013 August 2, 2013 Disbursement of short, medium and long-term loans Memorandum Mababha -1/111(953/2013) December 4, 2013 Registration No. 4380/1469-KaKa/2011- 2012 January 13, 2012 BS: 26/2012 March 22, 2012 2013 2012 Directive No.16/2012 April 3, 2012 CBM Reference rate FEMD: 3/2012 May 17, 2012 Holding Foreign Exchange To follow the minimum and ma- ximum interest rate limit Loan disbursement against Land & Building • Bank should not disburse loans against prosecuted or disputed land and buil- dings Interbank Borrowing Annex • Authorized deal banks may engage in borrowing or raising of money and extent the long-term loan with these fund • If AD banks receive long-term depo- sits, long-term loan can be extended accordingly • For extending the long-term loans, AD banks shall obtain the prior permission from the CBM • Financial Institutions shall perform borrowing and raising of money. Based on that, long-term loan can be exten- ded. • If FI receives long-term deposits, long- term loan can be extended accordingly. • Approval from CBM is needed for disbursement of long-term loan. • The maximum lending interest rate shall not exceed 13% per annum inclu- ding all service changes. Borrower Bank • To address the minimum reserve requi- rement and liquidity short fall Lender Bank • Interest rate is negotiable between lending and borrowing bank but not more than the CBM prime rate • Treat as loan • If loan period is more than 14 days, the CBM to be informed • More than 90 days loan period is not allowed • Loan should not be more than 20% of core capital • With collateral or without collateral is depend on BOD’s decision • To conduct buying and selling foreign exchange within plus or minus 0.3% of CBM reference rate • Nationals are allowed to hold legal FE earning maximum US$ 10,000 or equi- valent currencies for 3 months. After 3 months the balance shall be deposited with banks 105
Myanmar’s Banking Sector in Transition Directive No.27/2012 June 8, 2012 Loan secured by Treasury Bond • Treasury bonds can be accepted as FEMD: 3/2012 December 11, 2012 Account Opening for Foreigner • AD banks are authorized to open “cur- Memorandum November, 11, 2011 To manage withdrawal from ATM • To withdraw money from ATM without collateral. • Maximum 80% of Treasury Bond can be lent out. • Credit term shall not exceed maturity date. • For opening demand deposit account (with foreign currency) Remittance fee • 15 Pyar for 1000 MMK • 12.5 Pyar for > 1000 MMK • Fax one time – 500 MMK • Online one time – 500 MMk • For remoted area – 50 Pyar for 1000 MMK rent FE account” and “non-resident kyat account” for foreign embassies, diplomats and staff • Machine, commodities and crops can be accepted as pledge • Loan can be extended up to 60% of appraised value. • The maturity is based on the durabili- ty of the commodities and crops and decided by BOD. • Gold, Goldware (excluding jewelries) and Bullion can be accepted as collate- ral. • Loan can be extended up to 75% of appraised value with maximum one year maturity. • Money Changer License holder banks are permitted to trade USD, EURO and Singapore Dollar out of 12 currencies. • Supporting documents will be required over or under the threshold of USD 2,000/- in every exchange transaction. • Currying out Customer Due Diligence -CDD • Reporting • Record keeping difficulties shall be managed. • USD, EURO, SGD Directive No. 13/2012 July 4, 2012 2012 1604/1251-KaKA/2012 –2013 August 9, 2012 Authorization for Foreign banking to Authorized Dealer Licensed Banks Fees for Domestic Remittance Directive No. 25 January 25, 2011 Pledge (machineries, commodi- ties and crops) Directive No.22 September 8, 2011 Loan secured by Gold 2011 Directive No. 6/2011 September 29, 2011 Approval on Foreign Currencies Trading Directive No.7/2011 October 6, 2011 AML/CFT guidelines for Autho- rized Dealer Licensed Banks Directive No. 10/2011 December 8, 2011 Permission for trading foreign currency 106
Annex Directive No. 8/2011 December 14, 2011 Paid-up capital with Foreign Exchange • In addition to original paid-up capital in Myanmar Kyat for ADL, USD 5 Mil is set as additional paid-up capital Directive No. 9/2011 December 14, 2011 Directions for Domestic Account Transfer for Foreign Exchange • Directions for internal accounting pro- cess with regards to Foreign Exchange Directive No. 10/2011 December 27, 2011 Setting CBM bank rate 10% p.a.is capped as bank rate of CBM 2011 Directive No. 11/2011 December 27, 2011 Amendment to deposit and len- ding interest rates Directive No. 24/2011 December 27,2011 Loan secured by saving deposits • Savings interest should not be less than 2% of the capped rate. Lending interest should not be more than 13% p.a. • Savings, saving certificates and fixed deposits can be accepted as collateral and loan can be extended up to 80% of the deposit balance. 2010 Directive No. 7/2010 Guidelines on AML/CFT • See in guidelines on AML/CFT May 20,2010 Directive No. 4/2009 June 3,2009 2009 Memorandum June 3, 2009 Additional criteria for STR, Sus- picious Transaction Report, check list • Additional 15 criteria for STR Check list where the former 21 check criteria were under directives number 6/2006 Guideline on Due Diligence on Anti-Money Laundering and Counter Financing on Terrorist • See the guideline 2008 2005 2004 Directive No. 1/2008 December 30,2008 Banking operation instructions for private banks • General reserve – 25% of the net pro- fits and until it reaches to 100% of the total paid-up capital • General provision – 2% of total out- standing loans • Loan to deposit ratio – 70% – 80% Directive No.1/2005 May 26, 2005 Instruction on issuing loans • See in the instruction on issuing loans Memorandum January 30, 2004 To record comprehensive infor- mation of customers • See in memorandum Source: CBM 107
Myanmar’s Banking Sector in Transition Annex 4: Mobile Financial Services Regulations (a) A minimum capital of MMK 3 billion (b) Application fee of 0.1% of minimum capital (c) Minimum three-year business plan and description of proposed types of mobile financial services to be offered (d) Details of the board of directors and management, including compliance with the fit and proper requirements (e) In case of MNOs, a letter of no objection from the Ministry of Communication and Information Techno- logy, and in case of non-bank financial institutions, a no-objection letter from the primary regulator of that entity and other requirements CBM deems necessary. In addition to proper risk management standards, compliance to the Anti-Money Laundering Law and Counter Terrorism Laws and other internal controls, MFSPs are required to keep 100% of their float in a trust account at a bank, which consists of liquid assets and shall be separated from any other funds of the MFSP. Every MFSP shall reconcile the balance in the trust account against the float not later than 4 p.m. each day. Once the license is granted, MFSPs can engage with agents such as mobile network operators, partner banks, non-government entities and other partner businesses with nationwide networks. MFSPs are allowed to conduct the following services: (a) Opening and maintaining MFS accounts (b) Cash-in/ cash-out transactions to/from MFS accounts (c) Money transfer between MFS accounts (d) Domestic payments between business, individuals and government, and (e) Transactions between MFSP account and linked bank accounts. The limits on daily and monthly transactions as well as Know Your Customer (KYC) and Customer Due Diligence (CDD) requirements are also mandated by the CBM, as shown in the table below. 108
Annex Tier KYC/CDD Level 1 (individuals only) Level 2 (individuals only) Level 3 (for registered businesses only) presentation of ID (the national ID is first priority, driving license is second priority or passport) is required if and when necessary SIM registration or ((the national ID is first priority, driving license is se- cond priority or passport) is required to submit Business registration certificate, iden- tification requirements for opening bank accounts Cumulative Transaction limits Per Day Cumulative Transaction limits Per Month Maximum Balance limit 50,000 Kyat 1 million Kyat 200,000 Kyat 200,000 Kyat 5 million Kyat 1 million Kyat 1 million Kyat 50 million Kyat 10 million Kyat Source: Regulations on Mobile Financial Services (CBM, 2016) 109
Myanmar’s Banking Sector in Transition Annex 5: CBM regulations on loan loss provisioning and loan classification Myanmar banks are required by CBM regulation to make two types of loan loss provisioning: general provisioning and specific provisioning. As per CBM instruction No. 17/2017, banks have to set aside general provisions for loan losses at the value of 2% of total outstanding loans and advances at the end of a reporting period. The banks charge the general provision in other comprehensive income statements (net profit after tax) and maintain it in equity under reserves. In addition to general reserve provisioning, the banks have to classify loans and make specific provisions as follows: Sr. No. Classification of loans/advances Days past due Provisions on short- fall in security value (a) (b) (c) (d) (e) Standard Watch Substandard Doubtful Loss 30 days past due 31 to 60 days past due 61 to 90 days past due 91 to 180 days past due 0% 5% 25% 50% Over 180 days past due 100% Specific provisions are calculated on the shortfall amount of past due loans where the current forced sales value of the collateral is lower than the outstanding loan amount. CBM Directive No. 7/2017 follows up the asset classification and provisioning regulations. It is a significant departure from collateral-based to risk-based lending, the beginning of the end of using overdraft as an open-ended facility and the first time in the banking sector officially allowance of up to three-year term-loan based on business cycle and related cash-flow pattern. Significant features of the Directive can be seen below: Banks can lend overdrafts and loans subject to a maximum maturity of one year and three years respec- tively, with interest payments at least on a quarterly basis and subject to reasonable amortizations (for loans), payable at least every three months in order to develop new lending products with repayment terms. Converting banks’ outstanding overdraft facilities as at July 7, 2017, into term loans with up to a maximum maturity of three years on condition is allowed, if the banks shall satisfy all requirements as follows: • The bank submits an Asset-Liability Risk Management Framework • All overdrafts shall be in accordance with the Large Exposures Regulations • All overdrafts shall continue to be deducted from capital in accordance with the Capital Adequacy Regulation • All non-performing overdrafts (as verified by external auditors as at March 31, 2017, financial audit or as reported to the CBM as at June 30, 2017, whichever is greater) shall not be converted into loans 110
Annex • The bank submits to the CBM a list of all overdraft facilities (amounting to at least MMK 5 billion or 10% of core capital, whichever is lower) indicating whether it is NPL or not. If NPL, indicate number of days past due and whether it is a related party lending or not; if related party indicate relationship • The bank submits the loan amortization schedule and a brief assessment of the borrower’s credit worthiness. All banks are required to submit a copy of their Asset-Liability Management Framework and a list of large overdraft facilities. Quarterly progress reports on converted overdrafts shall be submitted to CBM not later than ten days after the end of each reference quarter. Volume of bank’s overdraft facilities in percent of total outstanding loan portfolio shall be reduced in accordance with the following schedule. Deadline (a) as of July 6, 2018 (b) as of July 6, 2019 (c) as of July 6, 2020 as % of total outstanding loan portfolio 50% 30% 20% All loans and overdrafts granted after July 7, 2017, shall strictly follow the Asset Classification and Provisioning Regulation. By issuing the Directive, the monetary authority encourages local banks to develop new lending products with repayment terms that consider the business cycle and cash flow pattern of the borrower. 111
Myanmar’s Banking Sector in Transition Annex 6: Institutions offering graduate degree programs Name of Institution Type of Institution Degree offered Yangon University of Economics Public Mandalay University Meiktila University of Economics Public Public Monywa University of Economics Public Myanmar Institute of Business (affili- ated with Oxford Brookes University & London School of Business and Finance) EEC Business School Strategy First Institute (partnered with Edinburgh Business School) STI Myanmar University Private Private Private Private Master of Banking and Finance MBA Bachelor & Master Economics, Statistics, and Accounting, Administration and Finance MBA MBA Bachelor & Master Economics, Statistics, and Accounting, Administration and Finance MBA Bachelor & Master Economics, Statistics, and Accounting, Administration and Finance Master of Finance & CFA preparation BSc Ap- plied Accounting MSc Professional Accountancy Executive MBA MBA Bachelor Business Admin. MBA BA Accounting Source: Inception Report, Frankfurt School of Finance & Management, 2018 112
Annex Annex 7: Institutions offering diploma and certified programs Name of Institution Myanmar Institute of Banking Courses offered Diploma in Banking Myanmar Financial Centre (affiliated with the Retail Banking Academy, UK & Project Management Institute) Bridging Program for recent graduates (4 months theory + 3 months internship) Modules include: Ethics in banking, principles of banking, products & channels, bank accoun- ting, central bank regulation and customer service. Certified Retail Banker Certified Cards and Payments Professional Certified Wealth Manager Certified Branch Manager Credit Performance Certified Professional Several individual courses on (SME) lending, marketing, financial analysis and management Strategy First Institute (Affiliated with the Association of Accounting Technicians (AAT), UK) Financial Management Accounting Auditing & Taxation Myanmar Institute of Business (Affiliated with Oxford Brookes University & London School of Business and Finance) Financial Analysis Diploma in (advanced) Accounting and Business STI Myanmar University (Advanced) Diploma in Finance and Banking Career Core Institute (Partnered with Reading College, UK) Diploma in Banking Operation Management Diploma in Financial & Management Accounting Myanmar International Business Academy (Affiliated with Chartered Institute for Securities & Investment, CISI, UK and City of Oxford College) Fundamentals of Financial Services International Introduction to Securities Investment Diploma in Banking & Financial Services Matrix Institute of Professionals (Affiliated with Chartered Institute for Securities & Investment, CISI, UK and ICAEW, UK) CFA Level 1 Certificate in International Trade and Finance Diploma in Corporate Finance Myanmar Institute of Finance (MIF) (Securities & Investment Commission of Myanmar certified; CISI accredited) Nay Lin Aung – Finance and Accountancy Academy (Offers Pearson LCCI and ACCA qualifications) Certificate in Credit Analysis Certificate in Modern Corporate Finance Certificate in Accounting Certificate Risk in Financial services Certificate in Book-keeping and Accounts Diploma in Accounting & Finance (Advanced) Diploma in Accounting & Business Source: Inception Report, Frankfurt School of Finance & Management, 2018 113
Myanmar’s Banking Sector in Transition Annex 8: SME Development Law of Myanmar The SME Development Law was enacted on April 9, 2015 with the objective of supporting the development of SMEs in the country. The law classifies business enterprises as (1) manufacturing, (2) Labor intensive, (3) Wholesale, (4) Retail, (5) Services (6) Other business. The law defines SMEs in terms of number of workers and capital or turnover. Definition of SMEs: SME No. of workers (Small/Medium) PCapital (C)/Income (MMK million) (Small/Medium) 1. Manufacture 50/300 2. Labor intensive 300/600 3. Wholesale 4. Retail 5. Services 30/60 30/60 30/60 6. Other business 30/60 Institutional infrastructure: 500/500–1,000 (C) 500/500–1,000 (C) 100/100–300 (I) 50/50–100 (I) 100/100–200 (I) 50/50–100 (I) 1. Central Committee of SME, previously headed by president, was reformed on June 07, 2016 headed by the State Counsellor. 2. Working committee sphere headed by Vice President was formed including focal minister, relevant ministries, chief ministers of regions/states/Nay Pyi Taw council, government officials, local organizations, economists, technicians, professionals on November 29, 2017. 3. Evaluating and Reporting Body, SME Agency and Fund Management Body was formed successively on January 2, 2018 headed by Union Minister for Ministry of Industry, Deputy Minister for Ministry of Com- merce and Union Minister for Planning and Finance respectively. SME Development Fund With the approval of the Central Committee, the Working Committee shall form a fund management body for SME development. The fund management body has the responsibility to accumulate funds for SME develop- ment from both within and outside the country. Tax incentives Agency is responsible for advising respective departments to give tax incentives to private entrepreneurs who: (a) produce new and innovative products (b) run essential SMEs in the areas of least development (c) produce commodities using by-products and wastes (d) modify the factory to be able to produce energy and make effective use of it; and (e) engage in the refurbishments of SMEs destroyed by a natural disaster. Incentives: tax relief, allowance to lease plots of land at reduced rates, advice on the establishment of business and solving related problems, and assistance in setting up manufacturing JVs. 114
Endnotes Endnotes 1 cf. Myanmar country profiles on the websites of 20 World Bank, 2017 World Bank and Asian Development Bank 21 OAG, 2016 2 All data in this box, unless otherwise quoted, are based on the World Development Indicators 2017 (downloaded from World Bank website) 3 http://hdr.undp.org/en/countries/profiles/MMR 4 Global Financial Development Database (World Bank) 22 The February 2003 banking crisis was a major bank run on private banks, triggered by the collapse of small financial enterprises and rumours about liquidity shortages of major private banks. It led to the collapse of three major banks, economic recession and hardship for many people. 5 https://www.adb.org/countries/myanmar/ 23 IMF, 2018 economy#tabs-1-2 24 CBM Quarterly Financial Statistics, Vol. IV 2017 6 https://freecurrencyrates.com/en/exchange-rate- history/USD-MMK/2018 7 GIZ, 2016 8 IMF, 2015 25 IMF, 2017 26 GIZ, 2016 27 Thant, 2017 9 For more information on the legislative process 28 Milken Institute, 2017 refer to Annex 1 10 Information provided by CBM 11 GIZ, 2015 12 Directive No. FE1/452 (August 13, 2018) 13 Capital goods and intermediate goods consti- tuted more than two thirds of the total imports in the financial year 2016–2017 (CSO, 2017) 14 FATF on Money Laundering, 22 June 2001 15 FATF, 2004, p. 11 16 MAC notification 2/2009 17 MAC notification 1/2010 18 MAC Notification 1/2009 19 MAC Notification 3/2010 29 Myanma Alin, 20.10.2018 30 IMF, 2017 31 IMF, 2018 32 CBM, 2018 33 World Bank, 2018 34 World Bank, 2016a 35 CBM, 2018 36 cf. Micco et al., 2007 37 Htut, 2016 38 IMF, 2015 39 Kyaw, 2015a; Kyaw, 2015b 115
Myanmar’s Banking Sector in Transition 40 World Bank, 2018b 59 Annex 7 lists institutions in Myanmar offering 41 World Bank, 2018b, p. 62 42 World Bank, 2018c 43 World Bank, 2018a 44 World Bank, 2018 45 Roland Berger, 2017 46 IMF, 2015 47 World Bank, 2018b diploma and certificate programs related to finance. 60 MSR, 2018 61 GIZ, 2016 62 cf. annex 3 63 IFC, 2016 64 Naing, 2017 65 JICA, 2018 48 Bank loans per collateral type in Quarterly 66 According to a CBM Directive of July 2017, banks Financial Statistics Bulletin Vol. IV 49 Information provided by CBM 50 Myanmar Times interview with CBM Deputy Governors U Soe Thein and U Bo Bo Nge, 15th Nov, 2018 51 IMF, 2017 52 Myanmar Companies Law section 1(b) on 1st are required to submit Asset Liability Manage- ment (ALM) frameworks, i.e., a tool to manage maturity mismatches between assets and liabili- ties to reduce any liquidity risk; yet, CBM pro- vides banks with very limited guidance on developing ALM frameworks. Only with proper ALM systems established in the banks and longer-term deposits, banks will be able to circumvent any liquidity risk associated with long-term home loans. August 2018 53 IMF, 2018 54 Roland Berger, 2016 55 MSR, 2018 56 As the government and the CBM have stressed the importance of SMEs for Myanmar’s economy and show the will to create a supportive regula- tory and legislative environment for the coun- try’s SMEs, the need for these skills will likely increase further. 67 JICA, 2017 68 cf. annex 8 69 CBM, 2018. – Editor’s note: Banks define SME loans as unsecured or partly secured loans to enterprises. However, many SMEs finance their operations through overdraft facilities. Therefore, effective lending to SMEs is certainly higher than the 0.2% reported officially. 70 The Global New Light of Myanmar, 2018 71 JICA, 2018 57 Annex 6 lists public and private universities in Myanmar offering graduate degree programs related to finance and accounting. 72 The Global New Light of Myanmar, 2018 73 Myanma Alin Daily, 2018 58 MSR, 2018 74 JICA, 2017 116
Endnotes 75 Myanmar Times, July 2018 92 DBS research, 2016; Cuaresma, 2017 76 World Bank, 2016b 93 Wihardja, 2013 77 Tun, 2016 78 Tanner, 2018 94 Yamanaka, 2013 95 Standard & Poor’s, 2015 79 Global Financial Development Database (World 96 ibid Bank website) 80 cf. annex 4 81 Lynn, 2018 97 IMF, 2015 98 ASEAN Finance Ministers and Central Bank Governors meeting, March 21, 2015 82 In Myanmar, MAP was jointly funded by the 99 Internal CBM discussions, 2017 100 Bank of Indonesia, 2016 101 OAG, 2016 United Nations Capital Development Fund (UNCDF) and the Livelihoods and Food Security Trust Fund (LIFT). Globally, MAP also receives funds from the Partnership Framework on Inclusive Growth and Sustainable Development (PFIS), a partnership framework agreement with the Swedish International Development Coop- eration Agency (Sida). 83 https://datamarket.com/data/set/28lu/bank- noninterest-income-to-total-income#!ds=28lu!2 rqv=p&display=line 84 CBM Financial Bulletin, 2017 85 This includes the five founders, namely Indone- sia, Malaysia, the Philippines, Singapore, and Thailand, and five additional members: Brunei, Vietnam, Cambodia, Laos and Myanmar. 86 ADB, 2013 87 ibid 88 ibid 89 Bank of Indonesia, 2016 90 Wihardja, 2013 91 https://www.bis.org/publ/qtrpdf/r_qt1509z.htm 117