Ghosts of 2003 crisis haunt banks

Banks need to clean up their operations and subject their boards of directors, as well as their families, to intense scrutiny if they want to earn the trust of consumers, industry experts said last week.

The most recent incident – which followed a familiar pattern where panicked customers attempted to withdraw all their savings from the bank, causing a small run – hit United Amara Bank. The run was spurred by the sanctioning of former Minister for Industry U Aung Thaung, whose son owns United Amara Bank (UAB), by the United States government on October 31.

The US Department of Treasury said in its announcement that financial sanctions had been brought against U Aung Thaung for “intentionally undermining the positive political and economic transition in Burma, Aung Thaung is perpetuating violence, oppression, and corruption”, said Adam J Szubin, the director of the Office of Foreign Assets Control.

In the wake of the run UAB officials strenuously denied that U Aung Thaung had any links with the bank and was not a shareholder.

Previously, Asia Green Development Bank (AGD), owned by U Tay Za, who is also sanctioned by the US government, befell the same fate. In previous years Kanbawza Bank (KBZ) and Co-operative Bank (CB) have been afflicted by the same problem, with only the prompt actions of the Central Bank of Myanmar to assure the public and support the banks staving off more widespread problems.

The danger of a run on one bank spreading to the industry as a whole was illustrated in the 2003 banking crisis, when several banks collapsed. Official data provided by bank sources said only one in six Myanmar citizens own bank accounts, showing that the scars inflicted by the 2003 crisis have not healed.

The common thread linking all the runs on Myanmar’s banks is rumour of impending collapse or punitive action levelled by either the Myanmar government or the US.

AGD executive director U Soe Thein said many of the most recent runs have apparently concerned the reputations of the banks, their shareholders or directors or their relationships with the government.

“The backgrounds of the banks or their shareholders are not 100-percent clear, so this probably the main source of rumours,” he said. “This is distinct from runs that happen to banks internationally, where people rush to withdraw their funds from a bank based on its poor performance,” he said.

U Pe Myint, managing director of CB Bank, said some rumours appear to have been deliberately started to hurt individual banks, adding that the proliferation of social media sites such as Faceboook had significantly increased the pace at which rumour could spread.

However, he said Myanmar’s banks have been careful to insure themselves against collapse by buying treasury bonds and holding cash with the Central Bank.

U Pe Myint added that CB Bank had been hit by a mini-run in 2011, which was instigated by rumours that the bank was threatened with imminent collapse, which was allegedly the result of government pressure on its chair.

He added that support from the Central Bank and partner banks helped to defuse the crisis.

“We are experienced in how to solve these problems and are no longer afraid to return customer funds as required by the immediate situation requires. But it can be hard to control,” he said.

CB is now under the supervision of the Ministry of Co-operatives, which is checking the backgrounds of its shareholders and supervising some activities, to ensure the bank is not blacklisted.

Central Bank guidelines require each bank to have K20 billion (about $20 million) in paid-up capital with a government-owned bank, with an additional K700 million to be added for each branch in a city, and K300 million for smaller towns.

U Than Lwin, a KBZ vice president, said the latest draft of the financial institution law states that banks must disclose the backgrounds of its directors and supervisors, as well as where they have earned their money.

This, he said, would encourage banks to cut ties with directors and major shareholders with shady backgrounds.

However, the boards of many of the country’s banks are stacked with members from an individual family, making them easy targets for rumour, said U Than Lwin. He added that many banks would need to significantly reform their boards and shareholdings to be eligible to become public companies, an essential requirement for listing on the upcoming Myanmar stock exchange.

“Becoming a public company will clear up a bank’s image and the Central Bank is encouraging banks to take this path,” he said. “We are also considering this option.”

U Than Lwin, who was a deputy governor of the Central Bank during the crisis in 2003, adding that some of the banks that collapsed at the time lacked the experience to solve their problems.

However, he said the same customer anxiety and fear of losing deposited funds, or at least the interest owed on deposits, remain for customers.

But he said banks are releasing information such as their money circulation, loans and deposit ratios, liquidity ratio and the amount of money invested in treasury bonds through their websites, which helps to encourage consumer confidence.

“Domestic banks are becoming more transparent and mature and there are more financial institutions, which makes it harder for rumours to collapse banks,” U Than Lwin said.

Central Bank deputy director general U Win Thaw said the central bank has listed the boards of directors and shareholders of all commercial banks to allow the public to scrutinise them.

“The main thing is that this is our responsibility, to ensure that people lose their money nor their trust in the banks,” he said.

“People still lack awareness and they don’t know where they can confirm whether something is a rumour or fact. The message I want to pass is to ask the Central Bank or relevant bank first.”


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