Myanmar banks look to consolidation through better governance

Consolidation can be expected in Myanmar’s overcrowded banking sector, aided by improved corporate governance and central bank directives as well as a cleaning up of loan books, an investment conference heard this week.

Speaking at the Myanmar Global Investment Forum 2019 panel discussion “Changes in the Banking and Financing Sectors” in Nay Pyi Taw this week, Marco Breu, a consultant with McKinsey, said consolidation will take place “naturally” if local banks have good corporate governance in place.

“At the end of the day it is about good corporate governance,” Mr Breu said, adding that banks that are not performing well are likely to be taken over through “natural progression”.

Mr Breu said the market will define itself if there is no interrelated party lending, if the small banks are also measured in the same way as the larger banks are and that the non-performing loans are measured accurately.

AustCham chair Chris Hughes told The Myanmar Times during the conference that companies with better governance are attracting the most capital.

“Those who are making the change – including some of the banks, insurance companies and emerging national champions like Citymart who we heard from at Euromoney – will thrive,” he commented.

These banks and firms will “lead the process of consolidation rather than be victims of it” and build a stronger finance and services sector in the process, the lawyer added.

Consolidation in the banking sector is also being facilitated by new directives set by the Central Bank of Myanmar (CBM). In March, it issued a number of directives under the Financial Institutions Law (FI Law) relating to corporate governance of banks. These include bank director criteria, requirements that all directors must be approved by the CBM, the need for at least one independent non-executive director and a qualified external auditor.

With more than 30 commercial and state lenders in operations, the Myanmar banking sector is currently too big for an economy of its size, analysts say.

Approval is also needed for any acquisition of “substantial interest”, which is defined as anyone owning 10pc or more of the capital or of the voting rights, or a senior management employee. Notably though, the new Companies Law currently does not recognise the concept of “substantial interest”.

Collectively, the directives are an attempt to regulate lenders and reflect the fact that they operate with money from the public.

Liew Chee Seng, adviser to CB Bank, told this paper at the conference that the directives are “a step in the right direction towards a stronger banking industry” and “put the banks’ stakeholders – customers, directors, shareholders and managers – on a more solid footing.”

“This is, however, an industry-wise move and the full implementation is still underway like other countries that went through financial sector reforms,” Mr Liew said.

The banker noted that the liberalisation, allowing up to 35 percent foreign ownership of banks, paves the way for the entry of new shareholders which will also be subject to the “fit and proper” test.

The Central Bank lists 27 “private banks” and four “state-owned banks”, even though a number of lenders in the former group appear to be owned by the government or a military body. Innwa Bank, for instance, is owned by Myanmar Economic Corporation and hence the Ministry of Defence.

The Directorate of Investment and Company Administration (DICA), meanwhile, categorises banks into publicly listed, public banks, private or family-owned and state or military-owned lenders.

U Min Zaw Oo, director of DICA’s Policy and Legal Affairs Division, said that CBM and DICA coordinate their regulatory functions.

DICA and the Securities and Exchange Commission of Myanmar are cooperating with the OECD to develop the Myanmar Corporate Governance Code which will be launched next year, U Min Zaw Oo added. The code will be based on the Companies Law with a set of principles of good corporate governance which will cover all companies in every sector.

CB Bank’s Mr Liew said that as a public company with around 11,000 shareholders “we have more responsibility to be open and transparent to our shareholders and stakeholders, including depositors, other financial institutions and business customers.”

Source: Myanmar Times

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