Licensing, a milestone in banking industry

Greater convenience is one thing foreign companies doing business in Myanmar can expect as nine foreign banks gradually start their operations within the first half of next year.

The licensing is also another milestone of the country’s economic reforms, which have so far been successful in drawing foreign investment and the momentum should continue with support from political changes.

The nine banks, all from Asia Pacific region, on October 1 were granted preliminary approval to operate limited services in Myanmar, the first time in five decades. Considered the last frontier where foreign presence is still limited and subjected to some entry barriers, Myanmar has been a major destination for foreign investment. Foreign direct investment this year is expected to reach US$5 billion, nearly doubling last year’s $2.6 billion. Unsurprisingly, these banks are geared up to commence their operations as soon as possible.

According to the Financial Times, Bank of Tokyo-Mitsubishi (BTMU) plans to open its branch after April while Australia and New Zealand Banking Group (ANZ) sets June as the target. Bangkok Bank, the only bank from Thailand winning a licence, will also start operations within the first half.

Other winners – Industrial and Commercial Bank of China (ICBC), Malayan Banking (Maybank), Mizuho Bank, Overseas-Chinese Banking Corp (OCBC), Sumitomo Mitsui Banking Corp (SMBC), and United Overseas Bank (UOB) – have not yet given exact timeframes for opening, but all are apparently ready to start within the given deadline of 12 months from the announcement date.


As of June, there were 43 foreign bank representative offices in Myanmar. All representative offices are limited to providing consultation services to clients exploring business opportunities in Myanmar. There are altogether 26 local banks – four state-owned banks and 22 private banks.

Now, nine foreign banks can be part of the system.

Each of them must bring in a minimum US$75 million of capital. The licence allows the nine banks to offer wholesale banking products and services to foreign companies and domestic banks. They cannot engage in retail banking and are also restricted to lending to foreign investors in foreign currencies, not the local currency, the kyat.

They can extend kyat-denominated loans to local companies through partnership with domestic banks.

The foreign banks are allowed to take deposits and lend in US dollar and euros. Earlier, the Singapore dollar was on the list of permitted foreign currencies. However, the kyat can be deposited only into current accounts that offer no interest, as the authorities will continue to keep foreign banks’ influence on the local currency at bay. The kyat lending and deposit rates are now fixed at 13 per cent and 8 per cent, respectively.

Saying that the licences are the first step to modernise the banking industry, Central Bank of Myanmar Deputy Governor Set Aung said recently: “The initial step towards corporate banking will be to allow foreign banks to give loans to foreign companies and local banks. Then, local businesses can borrow from foreign banks through local banks. The interest rate will be 10-13 per cent for loans in kyat.”

In the announcement dated October 1, the Foreign Bank Licensing Committee said that the preliminary approval is valid for 12 months. The foreign banks have to fulfil the commitments made in their answer to the request for proposal, take all necessary measures to ensure functional banking operation from day one of business and will have to comply with requirements laid down by the Central Bank of Myanmar.

“Upon fulfilment of the above-stated, the Central Bank of Myanmar will grant the final License to operate in Myanmar,” the announcement said.

Thorough process

The Central Bank of Myanmar did not rush in opening the banking system, listening attentively to warnings from the International Monetary Fund (IMF) and complaints from local banks which consider themselves less competent and liable to be intimidated by foreign players.

Rumours of foreign bank licences first became news in 2013. Yet, during her visit to Myanmar in December 2013, IMF managing director Christine Lagarde noted that the country should not rush into opening up its banking sector to international competition.

“It’s most suitable for Myanmar to use the ‘no haste, no waste’ way for opening up its banking sector,” she said. “Myanmar must stabilise its banking system with strong monetary policy, directed by an independent central bank and a bank monitoring system with the help of IMF.”

In Myanmar months later, her deputy Naoyuki Shinohara noted that foreign banks’ presence would benefit the country, given their skills and expertise, but said Myanmar needed to strengthen its supervisory framework before full liberalization occurred.

Chaiyarit Anuchitworawong, executive vice president of Bangkok Bank, commended the Central Bank of Myanmar for its “no-haste” licensing process. Only foreign banks with a presence in the country were invited to submit a request for interest, which took place in the second quarter of this year. Thirty banks submitted requests.

“Certainly, these banks were forced to show active interest,” he said.

These banks were subsequently required to submit a request for proposal (RFP), which was the second stage. In one page of paper, the banks were required to outline business plans and their preparation and experience in overseas banking. Twenty-five banks including four Thai banks submitted the RFPs.

“It’s tough to squeeze it all in one page,” Chaiyarit said. “In our RFP, we showed our readiness to promote risk management and foreign exchange. We also promise to help build up people capacity through special educational programmes in partnership with universities, for a sustainable workforce.”


It seems the central bank did not award the licences based on the history of the banks.

Among the winners, Bank of Tokyo-Mitsubishi UFJ seems to have the longest history, dating back to 1918 when it opened a representative office in the then-capital Rangoon. It was called Yokohama Specie Bank then, and expanded to 14 branches across the country before closing them all at the end of the Second World War.

In 1954, BTMU attempted to re-enter Myanmar with a representative office, but it was forced to shut due to the insular policies of the then-government. It became the first Japanese bank to re-enter the country in 1995, opening a representative office. In 2012, it forged an alliance with locally owned Co-operative Bank (CB Bank) that has seen it offer training to CB Bank staff as well as funding to help it launch its microfinance lending.

ANZ’s history in Myanmar seemed to be the shortest. The bank just opened a representative office in Yangon, last year.

In between, Maybank had a representative office there for 20 years. It had established correspondent banking relationships with domestic banks and had financed key infrastructure projects, such as airport, telecommunications and gas pipeline projects in Myanmar.

OCBC said in a statement that it has had a presence in Myanmar for 60 years, having first operated as a branch for 40 years from 1923 to 1963.


Linus Goh, OCBC’s head of global commercial banking, said in a statement released after the CBM announcement that with a branch, OCBC would be able to do much more. Foreign companies will soon be able to open an OCBC bank account in Myanmar and be supported by an experienced team of commercial bankers based in Yangon to support their banking needs for their local projects and operations.

“Since the opening up of the Myanmar economy in 2011, we have witnessed a steady increase in foreign interest across several key sectors of the economy including real estate and infrastructure development, commodities, power and energy, and telecommunications.”

UOB chief executive Wee Ee Cheong said: “The licence will allow us to participate in Myanmar’s economic development by deepening our onshore banking relationships. We hope to work even more closely with the Central Bank and Myanmar and local banks to provide financial solutions for the banking community and multinational companies that invest in the country.”

Bangkok Bank’s Chaiyarit said that at the initial stage, the branch would be manned by some 20-30 staff, mostly local staff in accordance with its proposal to help transfer knowledge to them.

“Our policy is to man overseas offices with local people while Thai staff will account for only 2-3 per cent,” Chaiyarit said. “Indeed, skilled labour shortage is a top concern of people in the Myanmar banking industry, as the permitted foreign banks may spark a fight for personnel.”

The Myanmar branch would require an initial investment of US$75 million, the minimum requirement by the authorities. Profits reaped from the operations would be reserved for expansion. Bangkok Bank Myanmar Branch’s focus is on foreign entities in Myanmar, including Thai companies or joint ventures with Thai interests. In July, the bank hosted the “Bangkok Bank Brings Asia to Myanmar” conference in Yangon, indicating its ambition to bridge clients in Asian countries – which cover seven Asean nations, China, Taiwan, Hong Kong and Japan – with prosperity in Myanmar.

Investment boost

Moody’s Investors Service said in a Credit Outlook earlier this month that the entry of foreign banks in Myanmar continues a liberalisation in the investment regime and will diversify the trade and investment financing options available to foreign companies operating in the country.

The inclusion of foreign banks should improve overall institutional strength, which is currently a credit constraint for Myanmar, by infusing a degree of competition, training personnel and facilitating a transfer of technology.

This is an important first step toward the transformation of a financial system that is predominantly cash-based, and where a large unregulated shadow banking system exists, the rating agency noted.

“Owing to decades of economic isolation and a nationalisation of foreign banks in 1962, Myanmar’s financial system is shallow,” Moody’s said. “History has shown that the transformation to a market system from a formerly nationalised, socialist system is a bumpy process often accompanied by financial crises. Such was the case in Vietnam in 2012.”

In Myanmar, bank loans comprise just 19 per cent of GDP, compared to ten times as large ratios of some frontier market economies in the region, Moody’s noted.

The preliminary approval is just another step to liberalise the economy, a process that started in 2012 when the new foreign investment law was enacted to woo more interest from overseas corporations. The same year, the US started easing economic sanctions against the Southeast Asian nation after President Thein Sein began a democratic process that elected opposition leader Aung San Suu Kyi to Parliament after 15 years of house arrest.


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