Banking Sectors in Burma

Banking Sector in Burma

Myanmar's banking industry has benefited significantly from reforms initiated by President Thein Sein's reforms and the partial lifting of US sanctions, which have enabled them to expand both their footprint and range of services on offer.

But the sector also faces significant challenges – not least a lack of public trust – and there are both threats and opportunities on the horizon. Many institutions are betting on the arrival of mobile money – financial technology instruments that will enable anyone with a smartphone to open an account – to reach Myanmar's great "unbanked": the 90 percent of the population without a bank account.

In this special feature, Frontier Myanmar provides an in-depth look at the current state and future of the banking industry, including what further reforms are planned, the role of newly licensed foreign banks and why cash is still king.

Why America won’t take your Myanmar Kyat?

A bank teller in Yangon counts US currency. 

Although most financial sanctions have ended, the high cost of violations and low potential profits means few US banks will do business with Myanmar.

ANYONE who has tried to get US dollars out of the country will know what a headache it can be. Options range from complicated third-party money trails through Thailand or Singapore to tucking US$100 bills into the backpacks of friends heading back home.

In the eyes of the United States Treasury and Congress, Americans should have no problems conducting these transactions, however. In 2012, the US Treasury lifted general sanctions on the financial sector and in subsequent years removed individual banks, Asia Green Development Bank, Ayeyarwady Bank, Myanma Economic Bank and Myanma Investment and Commercial Bank, from its blacklist.

But American banks are often not willing to do businesses, making it difficult for American companies to remit money home and for Myanmar companies to buy goods and services from the US.

“The challenges of getting money in and out of the country are a nightmare,” said Mr Hal Bosher, CEO of Yoma bank.

Bosher, who worked at the World Bank Group for 10 years, said the lifting of sanctions thus far amounts to a “half step” where US dollar transactions are concerned.

The remaining obstacle is the Specially Designated Nationals (SDN) blacklist of individuals and companies. Aside from those listed, any company in which a sanctioned entity has a majority stake is also automatically off limits.

As many American banks see it, this creates a due diligence minefield. Profits are too low, and potential reputational and financial damage too high, to justify the risk of inadvertently transferring money connected to the wrong person.

“American banks say, ‘I’ve still got to sit here and root through 150 names.’ It’s very cumbersome,” Bosher said.

The problem is not specific to Myanmar.

“There have been recent cases involving international banks which were heavily fined in [New York] for not having exercised sufficient due diligence,” said Dr Yvonne Wong, author of Money Matters in Myanmar, an in-depth analysis of Myanmar’s financial sector.

In February of this year the US Treasury fined Barclays Bank US$2.48 million for 159 violations of sanctions against Zimbabwe. Go back a little further and you’ll find fines for sanctions violations – including Myanmar sanctions – that are in the hundreds of millions of dollars.

“US domestic legislation makes dealing with Myanmar banks – which still remain a money laundering concern – difficult,” Wong said. “Domestic legislation calls for enhanced due diligence, making compliance much more costly for US banks.”

In Southeast Asia, countries like Cambodia, Vietnam and Indonesia are also handled with extreme care. Indeed, viewed from the US, Myanmar is just one of many countries with entities that need to be avoided. The issue of whether Myanmar banks are trustworthy is irrelevant if the country can’t cut through the noise to begin with.

Change must begin on the Myanmar side, Bosher argued. He and US ambassador Scot Marciel have entertained the idea of a “road show” for Myanmar banks, facilitated by the embassy, that would see American companies tour their compliance departments in order to show them a Myanmar beyond smuggled opium and jade.

But the market will also need to demand change, with more, large US corporations and investors setting up shop in Myanmar and pressing their banks back home to play ball.

Sanctions and Myanmar government efforts to control currency flows across borders have contributed to a large transfers “grey market”. Rather than banks, informal networks, such as hundi, are used to remit funds back and forth.

“It’s not like money isn’t going offshore. It’s just run through a money network that is completely off the grid,” Bosher said. “That market is not necessarily black money. It could be a legitimate business, but the pain of going through a formal bank is so high that they say, ‘Forget it, let’s just go back to this other mechanism.’”

By JARED DOWNING | FRONTIER

Corruption case opened after Yangon court frees actor's alleged killers

Actor Aung Ye Htwe (Facebook)

YANGON — The national anti-corruption body has opened an investigation into a Yangon court’s decision to drop charges against three men accused of killing Facebook celebrity turned movie star Aung Ye Htwe in a fatal altercation last New Year’s Eve.

On July 26, Yangon’s Eastern District Court accepted an application from the victim’s family to drop the charges and the three suspects were freed.

But following public outcry and subsequent intervention by President U Win Myint, a government spokesperson said on July 30 that the Union Attorney General’s Office would submit an application to continue the pre-trial hearing and examine eight remaining witnesses.

Today, the Anti-Corruption Commission announced on its Facebook page that it would investigate the case. “Speculation that there might be corruption concerning this case is spreading on social media,” it said in a statement.

“Since there are reasons to be suspicious of corruption in this case, the commission unanimously decided to take it as reported information, at a meeting held on August 2, under Section 17(h) [of the Anti-Corruption Law]. The commission believes there may be reliable evidence in this case.”

Under Section 17(h) money or property may be confiscated from a person who has been “illicitly enriched by such monies or properties due to bribery.” A spokesperson from the Anti-Corruption Commission told Frontier today they could provide no further comment as the investigation is ongoing.

The suspects turned themselves in following an incident on New Year’s Eve in which Aung Ye Htwe later died from severe head injuries.

They were charged with murder under Section 302 of the Penal Code but the case was dropped after the court received a petition from the victim’s elder brother, plaintiff Ko Thant Zin Oo and his family, under Section 494(a) of the Code of Criminal Procedure.

No reason was given for the request, but local media reports speculated that defendant Ko Than Htut Aung and his co-defendants may have paid the family to drop the charges.

A Facebook campaign accused the court and the suspects of corruption while lawyers and activists said the acquittal risked undermining what public confidence remained in the judicial system.

Win Myint, who is trained as a barrister, took a personal interest in the case, government spokesperson U Zaw Htay told media earlier this week.

At a meeting with government officials in Yangon on July 29 the president stressed the importance of the rule of law in a democratic system and the need for the judicial sector to be free from bias and corruption, the Irrawaddyreported.

Zaw Htay told media the remaining eight witnesses in the case would testify once the court formally reopens the case. He said there were reports that the suspects had left the country and that if that were the case, Myanmar would cooperate with international police to ensure they returned.

MIC approves Border Guard Force-backed luxury villas project

Myanmar Investment Commission, MIC

YANGON — The Myanmar Investment Commission has approved the first phase of a multi-billion dollar “city expansion” project in Kayin State’s Myawaddy Township backed by a local Border Guard Force and Chinese conglomerate.

Myanmar Yatai International Holding Group, formed by the Kayin Border Guard Force and Chinese listed firm Jilin Yatai Group, will invest US$22.5 million in the project, a Directorate of Investment and Company Administration official told Frontier.

Daw Mya Sandar, director of Investment Division 3 at DICA, said the first phase of the city expansion would see the company build high-end villas on 25.5 acres of land beside the Thaung Yin river in the Kaukoo Myaing region of Myawaddy. The project was approved on July 26.

MIC data shows the BGF will hold a 20 percent stake in Myanmar Yatai, while Jilin Yatai will own the remainder.

BGF official and Myanmar Yatai director Saw Min Min confirmed earlier reports that the entire project would see 2,000 acres of land along the border developed. The project will include a a hotel, school, monastery, shopping centre, park, villas and golf course, and will connect with the Asia Highway, he said.

“We want to implement the whole city expansion project but the state government doesn’t allow us so we’ve decided to begin with phase one,” Min Min said.

Myanmar Yatai Group expects to complete the first phase within three years and is also hopeful of receiving prompt approval for phase two. The engineers on the first phase of the project would be Chinese, he added.

Mya Sandar said MIC had no information on future phases of the “city expansion” project.

“They just submitted a proposal for high-end villas project. We don’t know about the rest,” she said.

“We don’t know that their partner is Chinese. According to our documents a Cambodian businessman owns 67.68 percent and two Malaysian businessmen own 12.32 percent,” she said.

However, Min Min from the BGF confirmed that the three foreign directors involved in Myanmar Yatai are representatives of Jilin Yatai Group, which is involved in the building materials, real estate, pharmaceutical, finance, coal, and trading industries.

He said the directors are Chinese but hold citizenship of other countries.

Dismay as veteran Central Bank chief nominated for second term

Many had hoped President U Win Myint would promote a reformer to the role. (AFP)

NAY PYI TAW — Parliamentarians say they hoped for change at the top of the Central Bank after President U Win Myint nominated governor U Kyaw Kyaw Maung for a second five-year term.

The veteran banker has served 15 years as Central Bank chief, including from 1997 to 2007, a period marked by a major financial crisis that critics say he did little to avert.

More recently, when President U Thein Sein called him out of retirement in 2013 to lead the newly independent institution, Kyaw Kyaw Maung was seen as a conservative who was unable — or unwilling — to modernise in line with wider economic reforms.

His term ends on July 31 and many had hoped Win Myint would take the opportunity to promote a reformer to the powerful role. Hluttaw representatives say they are disappointed by what they see as a missed chance to accelerate economic reforms.

U Aung Kyaw Kyaw Oo (Hlaing, Yangon Region) said he did not agree with the decision. “We want a new [governor] who can really make reforms and who will make the Central Bank more independent and improve banking facilities,” he said.

He said Kyaw Kyaw Maung appeared to have done little to control inflation or the exchange rate. Local businesses had also hoped a new governor might relax rules around foreign banking operations, he said, so they could access long-term loans at low interest rates.

The industry would have preferred a younger choice such as U Set Aung or U Bo Bo Nge he said, and he questioned the government’s decision to prioritise stability over reform.

Daw Khin San Hlaing (Pale, Sagaing Region) also believes it is time for change. “I want someone else,” she said. “There are many competent people … we expected a young person who could do the job effectively and energetically for the rest of our government’s term.”

She said Kyaw Kyaw Maung was trusted because of his experience, but warned that he was unlikely to implement much-needed reforms.

Hluttaw representatives were told to register by today if they wanted to discuss the nomination, with debate likely to take place this week.

The confirmation process for the Central Bank governor position is vague, with the Central Bank Law of 2013 stating only that the person should be “appointed by the president with the consent of the Pyidaungsu Hluttaw”.

This differs from appointments for most other union-level positions, such as the chair of the Union Election Commission or Constitutional Tribunal, where the constitution states that lawmakers can only object to the president’s nomination if it “can clearly be proved” that the nominee does not meet the criteria.

However, parliament observers said they thought it unlikely NLD lawmakers would object to Kyaw Kyaw Maung’s nomination given it had come from the party’s leadership.

If the nomination is upheld, major economic reforms over the next five years appear unlikely. Aung Hlaing Win (Mingalardon, Yangon Region) said he does not expect anything to change.

“With the same old [governor], no doubt, all will be the same as before,” he said. “The government deficit will be replenished by the Central Bank. Commodity prices will continue to rise and the government will let the Central Bank print new currency.”

It is not just parliamentarians who are upset by the choice. Small and medium businesses, hamstrung by strict lending rules, that have benefitted the elite and curtailed economic growth, had been hoping for reforms since the current administration took power.

The business community was “shocked” by the decision, said U Maung Maung Lay, vice chair of the Union of Myanmar Federation of Chambers of Commerce and Industry.

“All yearn for change. New ideas, new leaders, new approaches, renewed hopes,” he said. “The present government, as many have claimed, needs a sort of miracle.”

At the very least, he said, political leaders should attempt to alleviate fears of businesses and the general public over the slow pace of reform. “Otherwise they will be doomed,” he said. “No landslide in 2020.”

President nominates Central Bank governor for another term

The Central Bank of Myanmar office in Yangon. (Burma Business Insider)

YANGON — President U Win Myint has nominated Central Bank Governor U Kyaw Kyaw Maung for another five-year term, in a move that is likely to disappoint those hoping for a change in leadership at the bank.

The president informed parliament of the nomination this morning and lawmakers are expected to approve it in the coming days. Kyaw Kyaw Maung’s five-year term was due to expire on July 31. Under the 2013 Central Bank Law, the governor can serve two consecutive terms. 

Frontier understands that the decision to re-appoint Kyaw Kyaw Maung, 79, was made following the resignation in late May of Minister for Planning and Finance U Kyaw Win. The minister was replaced by U Soe Win, who had been considered a frontrunner for the Central Bank governor position. Some in the government felt that replacing both the finance minister and Central Bank governor in quick succession could create instability.

Kyaw Kyaw Maung’s nomination ends months of speculation over who the government would tap to lead the bank, but is likely to spur further discussion over the direction and pace of economic reform under the NLD.

Prior to being nominated by U Thein Sein in 2013, Kyaw Kyaw Maung had already served 10 years in the role from 1997 to 2007, a period marked by a major financial crisis that critics say he did little to avert.

After returning to the post he was soon being attacked for continuing with policies reminiscent of the junta-era. When the currency began weakening in 2015, he refused to let the official exchange rate depreciate and his actions created a parallel market for the kyat. The President’s Office was forced to intervene to restore stability.

Under the National League for Democracy, however, Kyaw Kyaw Maung appears to have become more reform-minded. Last July, the Central Bank released a set of modern prudential regulations which, while signed by Kyaw Kyaw Maung, were closer to International Monetary Fund blueprints than junta-era edicts.

For more on those who had been discussed as potential candidates for the governor position, read our primer from late May.

Credit by: FRONTIER