The Central Bank of Myanmar’s new real time settlement system should help create a more liquid secondary market for Treasury bonds, and help banks manage their collateral, the central bank’s deputy governor said.
The system’s immediate benefit to banks is saving hours of work that would be spent manually clearing and settling transactions. Central Bank deputy U Set Aung said all paper-based banking operations would fade away with the new system. But its implications go far beyond simply making cash transfers faster.
“It has many more functions beyond the ordinary transfers of funds, he told The Myanmar Times at the official launch on January 18.
The new settlement system – CBM Net – went live earlier this month. Built in collaboration with Japan International Cooperation Agency, it connects the Central Bank branches in Yangon, Nay Pyi Taw and Mandalay with local and international banks in Myanmar.
Banks can also use CBN Net to clear Treasury bond transactions, and better manage their liquidity. Interbank borrowing becomes popular when liquidity is low, and Treasury bonds are used as collateral in interbank loans.
Just as cheque clearing had to be done manually through the Central Bank under the old system, so too did interbank loans and collateral management. With the new system, the Central Bank can automatically check that lenders engaged in interbank lending post collateral correctly.
CBM Net also does away with the need for Treasury bonds to be issued in physical certificate form. With the advent of CBM Net, Treasury bonds can be issued in a standardised electronic format,U Set Aung said.
The Central Bank will start holding bi-weekly Treasury bond auctions early this year, and when the auctions do start – likely in April – the allocation process will be faster because it can be done through CBN Net, said a Central Bank official.
JICA provided 5.1 billion yen (almost US$50 million) as a grant to build the whole system, after the Central Bank and JICA signed agreement in October 2013.
“If we had bought an off-the-shelf software package it wouldn’t cost that much, but this is the most suitable system for Myanmar’s banking system,” U Set Aung said, adding the new system was a great leap forward for the country.
“We‘ve jumped [ahead] many steps,” he added. “Not all banking systems in ASEAN countries have this system.”
Source: Myanmar Times
