TOKYO — Myanmar has opened its banking sector to foreign players. Japan’s Bank of Tokyo-Mitsubishi UFJ and Sumitomo Mitsui Banking were among the first to launch branches in the Southeast Asian nation earlier in April.
Another Japanese company, Mizuho Bank, plans to open a branch in Myanmar this summer.
Nine foreign banks have been permitted to open branches in Myanmar. Japanese banks got the largest share of the first round of licenses, possibly due to the previous support they have provided for local financial institutions. For example, Mitsubishi UFJ and SMBC have helped local banks modernize operations and start international services.
Deregulation is expected to accelerate cooperation between Japanese and Myanmar banks and help modernize the Southeast Asian nation’s financial services sector.
Bags of cash
At the head office of Co-operative Bank in Yangon, an old man in late March puts bundles of banknotes, estimated to total around 1 million yen ($8,338), on the counter. Next to him, a young man places heavy bundles of withdrawn cash into a plastic bag.
Transferring large bundles of cash into and from banks is part of daily life in Myanmar finance. High-value notes are not widely circulated and there is widespread public distrust of banks. There have been frequent bank runs in the past. Only a few percent of the population have bank accounts.
Financial infrastructure is weak in Myanmar. Transferring money from one bank to another is difficult because there is no computer system linking different institutions.
That may soon change with the help of Japanese megabanks. Myanmar’s Co-operative Bank tied up with Mitsubishi UFJ at the end of 2012 to learn how the Japanese institution handles its banking services.
The Co-operative Bank had used handwritten passbooks prior to the tie-up. It now has an online system and has launched international services such as foreign exchange. It is also planning to introduce ATMs ahead of other Myanmar banks.
Funding sources for loans have been increasing in Myanmar. The International Monetary Fund estimates that deposits in the country totaled 16 trillion kyats ($14.8 billion) at the end of March 2014, up 40% from a year earlier.
“Banks still struggle with the funding requirements for businesses,” said an official at chamber of commerce in Myanmar.
The ratio of loans to deposits is only about 50%. Banks are allowed to extend loans only up to around 60% of the price of real-estate collateral and the lending term is limited to a year, under restrictions introduced as a result of past bank runs.
SMBC in 2012 teamed up with Kanbawza Bank, the biggest private bank in Myanmar, to provide training and other support. It has conducted some 20 seminars for key bank officials in the country after tying up with the Myanmar Banks Association in December 2013. “Loans are possible without real-estate collateral, just as long as lenders have a good grasp of the flow of people, goods and money,” SMBC stresses in the seminars.
Basic services in Myanmar can now be handled by domestic banks. SMBC, therefore, is now working to train local banks in how to assess corporate clients’ repayment capacities.
“Banks need to play their roles for economic development,” Nobuyasu Akagi, an SMBC official in Yangon, said. “We would like to create a system for offering loans to small and midsize businesses, though it may take time.”
SMBC will also cooperate with the Myanmar government in establishing a credit-guarantee system for loans to smaller firms.
Modernization of Myanmar’s financial infrastructure is getting underway. A server room for an information system to be created by Japan’s Daiwa Institute of Research for the central bank of Myanmar will soon be set up.
The role of Japanese megabanks in the country is likely to keep growing.