Private banks hike lending to SMEs

SMALL and medium enterprises in Myanmar will soon get greater access to finance as private banks plan to extend more credit to boost the economy, according to speakers at the Amcham Financial Services Forum held last week.

Zaw Lin Aung, managing director of KBZ Bank, the largest private bank in Myanmar with the largest retail network, said the bank had changed its lending policy to help the growth of SMEs across the nation.

“Our lending to SMEs is not based on collateral any more. We have changed to subjective- or objective-based lending. It is now based on their capacity to repay,” he said.

He said less reliance on collateral led the bank to knowing more about customers, understanding their business plans, knowing their financial conditions, and identifying sources of repayment.

He said 85 per cent of the bank’s account holders were SMEs, while corporations held the remaining 15 per cent. In terms of loans, 14 per cent of the bank’s total credit goes to SMEs while corporates get 86 per cent. KBZ is by far the largest lender in Myanmar, providing about 40 per cent of the nation’s total loans in fiscal year 2016-17, which ended on March 31.

According to Zaw Lin Aung, a micro business could get up to 50 million kyats (Bt1.2 million) loan while a small business could borrow up to 100 million kyats. A mid-sized business could secure a loan between 100 and 500 million kyats. Borrowers must repay within five years.

“In Myanmar, SMEs usually have limited access to credit because they do not have reliable financial statements, effective business plans and collateral. We aim to help develop SME entrepreneurs into better businessmen. So we usually try to ensure better understanding of the borrower’s capacity to repay,” he said.

Solutions for start-ups

The bank aims to support start-ups by providing advice, financial literacy training and tailored banking solutions.

It also aims to help female business owners to avoid gender inequality in Myanmar’s business climate, help SMEs in rural areas by leveraging its extensive branch coverage, and facilitate business matching to SMEs through its customer base in Myanmar and correspondent banks overseas.

The manufacturing sector holds 74 per cent of the bank’s total SME loans, followed by services sector (14 per cent), trading (9 per cent) and transportation (3 per cent). Most of the beneficiaries live in the Yangon region (40 per cent), followed by Shan State (20 per cent) and Magwe region (13 per cent). Only 8 per cent of them live in the Mandalay region.

Nay Lin Htut, director of corporate banking at AYA bank, which serves 1.4 million customers with over 9,000 employees through 225 branches across Myanmar, said the bank provided two main financing products for SMEs – on-demand loans and overdrafts, with the maximum tenure of one year.

He said AYA bank also provided a two-step loan for SMEs with the support of Japan International Cooperation Agency. Licensed businesses that have operated for at least two years are eligible to apply for loans of up to 500 million kyat with an 8.5 per cent interest rate. The loan has to be settled within five years.

George Koshy, director of corporate strategy and planning at United Amara Bank, said the bank would work with borrowers to reconstruct their financial models.

He said improving SME loans required accurate customer track records. He said SMEs in Myanmar often lacked financial records, banking records and collateral. He added they needed to apply financial discipline in making regular monthly repayments.

Source: Eleven Myanmar