Foreign banks to be picked in September

Which foreign banks will be allowed to operate in Myanmar will be selected in September, though their licences will initially contain significant restrictions, Central Bank of Myanmar deputy governor U Set Aung confirmed in parliament on June 25.

Requests for interest were sent to the foreign banks’ local representative offices in May, starting the process to licensing them for operations. However, the introduction of international institutions has drawn some opposition from local banks who are concerned about being out-competed.

Licences will be awarded by an assessment team consisting of officials from the Central Bank of Myanmar (CBM), the Ministry of Finance and Revenue and the Attorney General Office, with support from the World Bank, International Monetary Fund and German consultancy firm Roland Berger.

Between five and 10 foreign banks could be selected, said U Set Aung.

“It’s difficult to say the exact number of banks we will choose at present, because the selection method is based on how they rate on the bank-rating model,” he said at a joint session of parliament on June 25.

The assessment will consider the foreign banks’ international ratings, their capacity, and the extent to which they can support the growth of the economy and the financial sector, he said.

The central bank is eyeing allowing foreign banks to operate under a “quasi-branch banking”, which will be a mix of a subsidiary and a branch system. It will also require minimum US$75 million capital.

Foreign banks will have to rely on capital to lend out, and will have to increase capital if they would like to lend more, said U Set Aung.

“We won’t let them take all $75 million capital from the country. More than 50 percent, up to $50 million, will be locked-in,” he said.

Foreign banks will also face several restrictions, he said. They will initially not be allowed to open branches, operate retail banking, or offer direct banking services to local firms.

If local firms need to borrow money from foreign lenders, they will need to route through local banks.

“Apart from Singapore, in other Asian countries, local banks have never been overtaken by foreign banks,” said U Set Aung.

Authorities are pushing for foreign banks to create joint-ventures with local institutions once the Financial Institutions of Myanmar Law is passed. The law is currently being redrafted.

One current flaw is that a local institution is considered a foreign bank as soon as one share is sold to a foreign entity, and the new law will look to rectify this.


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