The latest regulation by the Central Bank of Myanmar (CBM) permitting foreign institutions to invest up to 35 percent in local banks has been well-received by the banking and financial industry. However, experts have flagged the need for further clarity in its provisions.
U Than Lwin, senior advisor to KBZ Bank, said the CBM should further clarify if foreign banks are allowed to invest solely in public banks or if they are free to invest in private banks or family-owned banks.
“The new regulation by the CBM is good for the industry as weaker banks will enjoy stronger financing and improve their services. But they should be more specific about the types of banks foreign investors can invest in,” he said.
U Pe Myint, senior advisor to Cooperative Bank, added that “if foreigners are now allowed to buy equity stakes in the local banks, then the next step is for the private banks to convert their status to public banks.”
There are currently very few public banks in Myanmar as meeting the requirements for converting is not easy. Of the 27 local banks, only a handful are public and just two - Myanmar Citizens Bank and First Private Bank - are listed on the Yangon Stock Exchange.
One way to achieve public status is for the industry to consolidate as small banks merge into larger entities. This will also help the CBM achieve its goal of improving the local banking sector, as weaker banks can strengthen their capital reserves and services.
The experts were speaking after the CBM on January 29 issued Regulation No 1/2019, formally allowing foreign equity ownership of up to 35pc in licensed banking institutions in Myanmar without the local firms changing in their nature.
The regulation implements the provisions of the Myanmar Companies Law, which came into force on August 1, 2018.
“Foreign firms can now invest up to 35pc in local firms and it will be the same in the banking and financial industry,” said U Bo Bo Nge, vice governor of the CBM.
However, investors are still required to seek approval from the CBM by submitting the relevant investment or joint venture agreement and other supporting documents. This step is consistent with the provisions of the Financial Institutions Law of Myanmar.
The CBM’s January regulation comes shortly after it also permitted foreign banks to expand their networks and services, including lending to local banks, in November last year.
“The CBM’s goal is for local banks to become better capitalised. We have been striving for it,” vice governor U Soe Thein told the Myanmar Times.
Economist U Naing Ko Ko said local banks “urgently require” strong capital backing so that they can support the local economy by lending to to small and medium-size enterprises.
“If the banks are poorly capitalised it will be impossible for them to lend. So, the CBM is permitting foreign banks to invest in the local ones as this will help them improve and strengthen their lending capabilities and other services,” he said.
