IFC signs second convertible loan with local bank

The World Bank’s International Finance Corporation (IFC) will issue a US$7 million convertible loan to Myanmar Oriental Bank (MOB), to help finance small and medium enterprises (SMEs).

This is the second such loan issued by the IFC in Myanmar – last September it signed with Yoma Bank for a $5 million convertible loan, also to help fund SMEs.

The IFC already has a relationship with MOB, and provided a $5 million trade finance facility to the bank last year to help local businesses increase imports and exports, generate more foreign exchange and create jobs. The convertible loan will be used for a similar purpose.

“IFC’s long-term financing will help MOB move closer toward its goal of providing more than $200 million in loans to small and medium enterprises, its core client group, by 2019,” said a joint statement.

The IFC hopes to work with more Myanmar banks in future, said Vikram Kumar, resident representative in Myanmar. However, they are not in discussions with any other banks at the moment, he said.

Investee banks will be required to meet the IFC’s performance standards – generally considered a global benchmark, said Mr Kumar.

“MOB is not yet there, but we will provide support to help it upgrade to international standards on governance, reporting and risk management,” he said.

The biggest issue at Myanmar’s banks is corporate governance and related party transactions, he said. However, the IFC has resident advisers to monitor this.

“We are putting our weight behind these two institutions and we will have a corporate governance specialist working with them,” said Mr Kumar.

In the future, the IFC would be open to providing credit lines to both Yoma and MOB, to help them lend more to small and medium enterprises, he added.

“Once the rules on collateral-based lending change, it will allow us to dole out credit lines. But first these banks need to grow – our exposure is constrained by their current capital base. Over the next couple of years as the capital base increases we can pump in more and more,” he said.

The loans to both Yoma and MOB are convertible into equity, if the Myanmar Companies Act changes to allow IFC to hold a shareholding as a foreign entity. “MOB has the option to convert the loan to equity if the law changes and if the Central Bank of Myanmar approves it,” said Mr Kumar.

If this conversion takes place, the IFC could become the first foreign entity to buy an equity stake in a Myanmar bank.

Source: Myanmar Times

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