Consolidation expected in banking industry as competition heats up

The Central Bank of Myanmar (CBM) believes that allowing foreign banks into the retail-banking sector will drive consolidation in the local banking industry and make available a larger pool of funds for growth.

“Inevitably, foreign banks will win market share from local banks and we see more mergers of local banks in response to a more competitive market,” CBM vice governor U Soe Thein said in a May 28 interview.

U Soe Thein said the CBM will be granting licenses for foreign banks to set up subsidiary banks in the country in addition to having their bank branches here. Setting up subsidiaries in the country will allow these banks to offer retail-banking services. “Generally, they’ll be able to offer most services. For now, they can already provide deposit and loan services,” he said.

With more competition on the horizon, Yoma Bank advisor Hal G. Bosher said local banks’ biggest challenge will be the technology deployed by foreign banks. The bank, one of Myanmar’s largest commercial banks, has invested in technology to stay competitive.

“It’s important to know to what extent foreign banks will deal with retail banking. As the foreign banks have advantages in technology, local banks will face challenges in competing against their technology-related services,” Bosher told The Myanmar Times.

But local banks have advantages too. For one, they are more market-savvy and connected compared to their foreign peers. Banking experts said local banks can leverage on the market data and other valuable information that they have collected over the years and use this as a carrot to tie-up strategically with foreign players.

U Than Lwin, senior consultant at KBZ Bank, said foreign banks would also be restricted by the high interest rates that the CBM mandates for deposits. “The deposit interest rate is 8 percent, which means that these banks will not be able to issue low-interest loans. These banks will not be able to offer large loans either as data on business owners are limited,” he said.

Still, while the country’s banking and financial services industry remains restrictive, these restrictions have been loosening with foreign banks being able to provide financing and other banking services since November last year to local businesses.

U Than Lwin conceded it was just a matter of time before loans with better interest rates become available and this will come as data on consumers’ credit history become more detailed and as more people’s credit history gets captured, paving the way for foreign banks to gain market share.

this front, U Than Lwin noted that the time has come for smaller banks to seek mergers among themselves in order to face competition.

U Soe Thein agreed. “The future goal for the banking industry should not be the numbers but stronger, more competitive banks,” he said.

According to CBM data, 13 foreign banks have branches in the country while another 51 banks and finance companies have representative offices. The CBM lists 27 local banks.

Besides easing restrictions on foreign banks doing business in the country, CBM announced in late January that foreign banks and financial institutions can hold up to 35pc equity in local banks following changes in the law last year.

Previously, foreign banks providing loans to locals did so under a system in which these loans were disbursed via local banks or government organisations, which acted as intermediaries.

Source: Myanmar Times

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