As banking opens up, Yoma Bank finds niche in SME loans and mortgages

With the Central Bank of Myanmar (CBM) having issues a slew of directives liberalising the Myanmar banking and financial sector over the past 24 months, chief executive Hal G Bosher is beginning to see positive opportunities for Yoma Bank in the years ahead.

“The CBM has been implementing reforms to bolster confidence in the industry since 2017. This is a good thing as it will help strengthen the banking system in the country with better quality of services,” he told the Myanmar Times during an exclusive interview.

To align the country with the Basel III set of international banking regulations developed by the Bank for International Settlements, the CBM in July 2017 introduced rules requiring banks to submit reports on large debts and amend the way bank liquidity ratios are calculated. It also tightened regulations on the types of assets banks can hold.

Less than six months later, it directed banks to convert all overdraft loans to term loans with the volume of overdraft as a percentage of a bank’s loan book to be reduced to 20 percent by July 2020.

On November 8, 2018, the CBM then announced that it would allow branches of foreign banks in Myanmar to offer financing for local businesses and operate other banking services.

This year so far, the CBM has permitted Myanmar banks to extend loans without the need for collateral at a maximum lending rate of 16pc. It also relaxed the requirement that banks allocate 5pc of their loans for home loans and allowed local banks to accept up to 35pc in equity investments from foreign banks or financial institutions.

On February 11, the CBM also issued a directive for banks to not have net open positions over 20pc of core capital.

To leverage on the more competitive banking landscape, Yoma Bank, which was awarded a full banking license by the CBM in 2013, is pushing digital services in an economy still largely reliant on cash transactions. It will also focus on capturing a share of the fledging home loans market and sharpen its edge in the small-medium enterprise (SME) segment of the market.

During our interview, Mr Bosher also shared his thoughts about the state of banking and financial services in the country and the outlook for the industry. Here is an excerpt of that interview:

Is Yoma Bank preparing for more competition with the CBM confirming recently that foreign banks and foreign financial institutions can own up to 35pc of local banks?

It is good that the banking and financial services industry is liberalising and allowing foreigners to own up to 35pc. The stake is still a minority stake with no decision-making power but whether or not owning more than 35pc is attractive is still a question and difficult to forecast. Regardless, it’s still a step in the right direction.

What is your view of allowing foreign banks to participate fully in local financing and other banking services?

It will be interesting to see how the banking landscape will change with more competition, which I see happening over the next 24 months.

Local banks have a strong customer base but they are weak in technology unlike foreign banks. These foreign banks can move faster than local ones by using digital platforms without having a physical branch network.

It will be easier to gauge how successful these foreign banks can be depending on what is allowed in terms of the financial technology and the opportunities that flow from there.

Is Yoma worried about the competition with other foreign banks?

From the very beginning, we have always emphasized supporting SMEs and this will continue. Our target market remains the mass-market and should the CBM further liberalise the banking and financial services industry, foreign banks will be aiming for the business of foreign firms and local high-net worth individuals.

Yoma Bank works closely with Yoma Land by providing property buyers the option to apply for mortgages. Will the bank prioritise mortgages as part of its edge over other banks?

We will focus on our home loans and we plan to grow it at a faster pace. Currently, the obstacle to home loan growth is the lack of documentation for ownership of properties. This is an issue not only in Yangon but other cities in Myanmar as well. However, we are concentrating on providing faster and better services to grow our home loans.

Will the bank offer uncollateralised loans?

There are opportunities here as this will make the banking industry more inclusive but banks will have to start thinking of new products based on that. Banks will also have to set up a proper risk management team for these products.

Do you expect a faster pace of loan growth with the setting up of a credit bureau?

This is a welcome move but for the bureau to be useful, it will need credit-history information to be provided, so it’s still in the early stage.

Is Yoma Bank buying government treasury bonds?

We have a treasury department in the bank that buys and sells treasury bonds besides trading them.

Do you plan to support the insurance market by collaborating with insurance companies?

We will consider working with foreign insurers as at present, we have no license to operate an insurance business nor do we plan to start our own.

What is the bank’s ratio of overdraft to term loans?

Our ratio of overdraft to term loans has generally been 50:50 and at present our overdraft loans is around 30pc, which means complying with the CBM’s rule will be easier.

How do you view the CBM’s reforms and will these reforms effect changes in the banking industry?

Banks and consumers need this change but for the reforms to be effective there must also be a change in mindset because the relationship between banks and their customers have not always been good. These reforms will benefit depositors as well as borrowers too.

Are there any other areas in the industry that can be improved?

The development of the banking system will help support the development of Myanmar. There must be a good balance of deposits to loans.

Also, there must be a competitive market without any restrictions on interest rates. If these restrictions are lifted, the situation will improve as in my view, Myanmar does not need such restrictions anymore.


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