Trade finance plans stalled

CB Bank is keen to start a program where the Asian Development Bank (ADB) guarantees some of its trade finance lending, but is still waiting for higher-level approval, said CB managing director U Pe Myint.

Trade financing is in its infancy in Myanmar, with few loans being given for trade, generally leaving exporters and importers to pay at the same time as shipment.

Rather than paying immediately, many businesses would prefer to import and export through a letter of credit system, where a bank guarantees the seller of goods will receive its payment from the buyer on time. The bank is then on the hook if the buyer fails to pay, but by having this arrangement the exporter is able to ship products before receiving payment.

“Normally foreign banks do not accept offers for letter of credit transfers from CB Bank because they don’t know it well,” said U Pe Myint.

The agreement with the ADB will see the development bank guarantee CB’s letter of credit for trade, making CB’s letters of credit more acceptable internationally, he said. He added the ADB will step in if CB is unable to meet its trade obligations.

However, the program is being held up on the ADB side, as it waits for government approval to proceed, said U Pe Myint.

Ministry of Commerce trade department director U Than Aung Kyaw said the letter of credit system has been approved since May 2013 for imports and only recently for exports.

He added the ministry is on the lookout for firms undervaluing their shipments when applying for import or export licences in order to avoid paying taxes.

Businesspeople told The Myanmar Times they are keen to take part in more sophisticated trade financing arrangements.

Rice trader U Soe Tun said improved financing will make it easier to export, but not fully remove all problems. Current trading often ties up large amounts of capital, making it difficult to expand business, he said.

“Even if Myanmar traders use the letter of credit money transfer system, however, trades will continue with artificial prices through Singapore,” he said. “There are so many problems that still need to be solved to promote Myanmar’s foreign trade.”


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