Insurance to Lead Finance Sector Expansion


Myanmar’s financial sector welcomed new faces this year – international banks opened their first branches, the stock exchange welcomed its first firms and there are joint-ventures on the horizon for the insurance sector in 2017.

Taiwanese firm E.SUN Commercial Bank, South Korea’s Shinhan Bank, Bank for Investment and Development of Vietnam and State Bank of India all opened branches in 2016 after winning a second round of licence applications that began the previous year.

Myanmar now has 13 foreign banks operating branches, which each required US$75 million in initial capital. A report by Roland Berger published in September estimated that foreign banks accounted for 47 percent of total banking equity in Myanmar. That estimate used a dollar exchange rate of K1190 to estimate the dollar value of local and state-bank’s equity capital. With the kyat’s subsequent slide to over K1360, Roland Berger’s estimates would mean foreign banks now account for fully half of banking equity capital.

But the international lenders remain banned from retail operations, and can lend only to local-foreign joint ventures and wholly owned foreign firms. Central Bank officials declined to comment on whether any more licences will be issued in 2017, or whether the activities in which international banks will engage will be relaxed.

Unlike the banking sector, Myanmar’s insurance industry remains entirely local. But that is expected to change next year. The finance ministry’s Financial Regulation Department told The Myanmar Times that the government will allow international firms into the market in 2017, as part of a liberalisation roadmap.

There are over 20 foreign firms with representative offices but other than three Japanese firms granted permission to operate in the Thilawa special economic zone – Tokio Marine & Nichido Fire Insurance, Sampo Japan Insurance and Mitsui Sumitomo Insurance – none have been allowed to open branches.

The liberalisation roadmap will lay out how foreign insurers should allowed into the market. Representatives from international firms will also sit on a new Myanmar insurance association, which U Soe Win Thant, general manager of Global World Insurance Company, thinks will be in place in February.

The regulator has already invited local and foreign insurance companies to Nay Pyi Taw individually to get their thoughts on how best to liberalise the sector, U Soe Win Thant said.

“I said there is a requirement to open up the market because we need technical expertise and knowledge, especially in areas like life insurance,” he told The Myanmar Times. “So in order to get that technical expertise we need to invite foreign insurers to help develop the Myanmar life insurance market.”

An American Chamber of Commerce White Paper published in July argued that product restrictions, a shortage of experienced professionals, IT systems and standards on cash reserves for different insurance policies left the Myanmar insurance sector vulnerable.

Senior executives at local insurers recognise the weaknesses, but remain cautious about allowing international firms unfettered access to the nascent market.

“We welcome foreign insurers, but allowing 100 percent foreign-owned insurers is very dangerous,” said U Soe Win Thant, adding that this would risk “locking out” local firms from the market. “So what we want is to prepare joint-ventures. Partnering [with international firms] will be the best way for the country and for our people, as well as for foreign investors.”

Eventually, Myanmar insurers will also be allowed to design their own products and set their own tariffs. At present, the 12 local firms are forced to offer the same prices on policies and can only compete on customer service. But liberalising pricing for insurance policies should be a later step, said U Soe Win Thant.

“It’s too early to liberalise tariffs,” he said. “Individual companies can set their own individual tariffs at a later stage.”

U Thant Zin of KBZ Insurance also wants to have a “slow step-by-step liberalisation”.

“In order to keep the playing field level we need time [to develop],” he said. “So we are willing to cooperate with foreign insurers and firms for things like reinsurance.”

U Thant Zin is keen to work with international brokers and underwriters to establish a reinsurance arrangement. At present, the best Myanmar insurance firms can do is spread the risk between them using a form of co-insurance, he said.

“But co-insurance is dangerous,” said U Thant Zin. “If something catastrophic happens in one area then all the insurance firms may suffer.”

Using foreign firms for reinsurance would allow local companies to form initial partnerships and identify which companies they may want to collaborate with more extensively, he said.

“I think this step will only come later after foreign-local joint ventures are established,” he said.

A slow start

The Yangon Stock Exchange is also hoping to welcome new firms in 2017. Six firms were picked to list when the stock exchanged opened in December 2015 – but a year later and only three have done so.

First Myanmar Investment, Myanmar Thilawa SEZ Holdings and Myanmar Citizens Bank all enjoyed a brief flurry of trading when they first listed, only to watch activity tail off in the subsequent weeks.

As the year draws to close the stock exchange, public interest in trading shares on the Yangon Stock Exchange is minimal. The average volume of FMI shares traded in a single day in November was around 1650. For MCB, the figure was even lower, with just 320 shares changing hands on a typical day.

MTSH instituted a share split in late October – splitting each share into 10 and correspondingly reducing the par value to one-tenth – which the directors said was designed to make the shares more affordable and boost trading. Trading in the firm’s shares ramped up significantly, and remains much higher than its two listed peers.

Economic analyst and businesspeople think that interest in the exchange will remain weak until in the middle of 2017, due to slower than expected economic growth, more lucrative short-term investment opportunities and a lack of awareness.

“The causes include a difficult economic situation and we also need to educate people about the exchange in order to increase public interest,” said U Maung Maung Thein, a former deputy minister of finance and former chair of the Securities and Exchange Commission of Myanmar.

U Maung Maung Lay, vice president of the Union of Myanmar Federation of Chambers of Commerce and Industry (UMFCCI), said that many people were more interested in speculating on the rising dollar, which promised more immediate gains.

“Therefore demand for shares is falling,” he said. “We have to deal with this issue.”

The lack of bigger investors like insurance companies or pension funds and a ban on foreign investors is another issue.

“The current stock market is still a retail market,” said U Ye Min Aung, managing director of Myanmar Agricultural Public Company, one of the firms scheduled to list on the exchange. “It needs the bigger investors [to enter] in order to develop. Once institutional investors and foreign buyers are participating the YSX will be more alive.”

A new Companies Act scheduled for passage in 2017 would allow foreign investors to own shares. U Ye Min Aung said his firm is still intending to launch before the end of the 2016-17 fiscal year on March 31.

First Private Bank has already sent disclosure documents to the YSX as part of the listing process and should appear early next year. Great Hor Kham Public, the last of the six firms named in December 2015, has also said it still intends to list.


Source: The Myanmar Times

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