Myanmar may see strategic deals as banking sector opens up for global players

Photo: Juliet Shwe Gaung. Sule Pagoda in Yangon.

Myanmar may be in for some strategic deal-making activity in the banking sector as it enters a new phase of growth since the regulations surrounding foreign banks’ participation in the country were relaxed early 2019.

“Based on the banks’ own strategies and corporate policies, both foreign and local banks are moving in the direction to be ready by 2020, either through a strategic alliance or partnership,” said Thaung Han, former MD and CEO of Myanmar Citizens Bank.

Fresh deals or partnerships are yet to be announced in the sector.

To recap, on January 29, 2019, the Central Bank of Myanmar (CBM) issued a regulation, permitting foreign banks and financial institutions to hold equity of up to 35 per cent in local banks. The development followed changes in the Myanmar Companies Law in 2018.

From 2013, foreign banks have been allowed to open representative offices in the country. Prior to that, Myanmar’s banking system was highly restrictive for foreign players.

The road ahead fraught with challenges

So far, the government has approved 13 banks to open bank branches, which include Australia and New Zealand Banking Group Limited (ANZ), Malaysia’s Maybank and Singapore’s UOB, among others. Currently, 25 local private banks operate in the country.

Apart from allowing foreign entities to own a minority stake in local lenders, the banking sector also rolled out changes in operations like increasing interest rate cap for unsecured lending; allowing the use of yen and yuan for cross-border settlement; and letting foreign banks to lend to local corporates.

In order to brace up for the future, local banks need to undertake reforms. Han, who is also the Group CEO of Max Myanmar Holding Co Ltd, highlighted the importance of good corporate management in local banks that could ensure a smooth transition. “Local banks need to up the overall management work and prepare for a complete well-rounded practice including advancing governance, cost effectiveness and profitability in some segments,” he said, adding, regulation also needed a leg up.

Going forward, time taken in changing the overdraft loan to the term loan; in providing the needful information to the public on terms for products like unsecured loans/credit cards; and in deciding to start a credit bureau, need to be expedited.

“Many would blindly point out that Myanmar is one of the last frontier markets. However, there are still a huge gap between the vision of the investors and the actual execution,” said Han.

Jeremy Mullins, managing director, Frontier Myanmar Research and Advisory said: “We are seeing an encouraging number of new home loan products, and some foreign banks are in negotiation to purchase stakes in local banks.” He, however, also indicated that the development about foreign banks investing in the local market is not devoid of challenges.

Echoing the same sentiment, Han said, the approval for foreign banks to invest in the country will not become a game changer in the immediate short term.

For instance, while foreign banks are allowed to lend in both foreign currency and Kyats to corporates, there are still restrictions on acceptance of immovable properties such as land and building as collateral for local currency lending. Kyat loans fall under local rules and thus foreign banks are only able to get back Kyats from local banks.

These challenges push foreign banks to have local banks as intermediaries to manage the collaterals or act as an agent, through a fee.

Since foreign banks have still not got a green signal to handle retail banking, local banks should not be worried about competition at this point but be prepared for the future.

Partnerships the way out in Myanmar

So far, a plethora of local banks have signed an MoU with their foreign counterparts. Kanbawza Bank (KBZ) and Japan’s Sumitomo Mitsui Banking Corporation (SMBC) signed an MOU in 2012 to collaborate on technology.

Than Lwin, deputy chairman, KBZ Bank, said, the partnership with SMBC will benefit KBZ Bank on capital development while the local lender would enable the bank to facilitate entry of Japanese investors into the market.

He reasons that foreign banks acquiring a minority stake in local banks may be hard to come by given the lack of ratings and assessments for domestic lenders.

Other partnerships include Mitsubishi UFJ Financial Group’s pact with Myanmar’s CB Bank in 2015. The partnership then enabled the foreign bank to borrow local currency from partner banks as global banks do not have direct access to kyat funding.

One notable investment that has been in works for quite some time is the International Finance Corporation’s $5 million convertible loan injection announced in September 2014 to support Yoma Bank’s growth strategy. The institution at that time was also looking to increase the amount up to $30 million. In 2015, IFC also announced a $7 million convertible loan in Myanmar Oriental Bank (MOB).

Also Read:

Myanmar’s central bank relaxes norms on foreign bank lending

Myanmar opening banking doors

Myanmar opens up insurance sector for foreign players

 

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.