Why Myanmar's banking sector is still a long way off from liberalisation

Foreign banks have to deal with a regulator that is still 'learning on the job'.

When OCBC bank was appointed the lead bank alongside three other foreign banks to complete a landmark $40.2m syndicated loan facility for a Malaysian telecommunications firm operating in Myanmar, it showed just how far the country has come to open up its market to foreigners. The deal was one of the largest syndicated loans led by onshore foreign banks since Myanmar opened up its financial sector to foreign banks last year.

Liberalisation is well under way in Myanmar with OCBC and other banks racing to take advantage of market opportunities as foreign companies expand their operations in the country, although banks still face a thicket of regulatory challenges that might take time to clear. There are currently four state-owned and 23 private banks, many with government shareholdings, but EY deems the products and services offering as “limited and immature.”

Despite the loosening up of banking regulations in Myanmar, the country is far from an operating paradise, says Liew Nam Soon, ASEAN managing partner, financial services at EY. “Although new banks are being set up and foreign bank licences are being awarded for branch openings, banks face considerable limitations both in terms of footprint as well as scope of operation,” he says. “For instance, banks can only open one branch and are restricted to only lending in foreign currencies to foreign companies. They are also not allowed to offer retail banking services. These restrictions are unhelpful in building up the financial system in Myanmar.”

"Foreign players face a range of challenges including operating in a market that is intensely competitive, difficulty in differentiating their products and services offerings, a lack of scale and access to local customers. In addition, they are also having to deal with a regulator that is still learning on the job," he adds.

The central bank may now have greater autonomy but Liew reckons the country’s banking laws need to be updated to be more robust and aligned with international practices. “In addition, existing regulations impose limitations on profitability, loan terms and the use of collateral while tight interest rates guidelines place caps on lending rates and floors for deposit rates and capital requirements. These limitations will need to be relaxed to allow the sector more room to grow,” he adds.