Over the past 15 years there has been a steady stream of new sector regulations, with each piece of legislation aligning Myanmar’s banks closer to international standards and best practices. This began in 2002 with the Control of Money Laundering Law, an important first step towards containing this problem. It also signalled to the international community that Myanmar was serious about addressing the issues behind sanctions against it. A Microfinance Business Law was passed in 2011, which was followed by the Foreign Exchange Management Law that established a managed floating exchange rate regime in 2012. The Central Bank of Myanmar (CBM) Law was then introduced in 2013, along with the Securities and Exchanges Law. The Anti-Money Laundering Law was passed in 2014, as was the Counter-Terrorism Law that had some implications for banking operations, as it sought to stop the flow of funds to extremist groups. The Financial Intelligence Unit and Anti-Money Laundering Central Board were founded to oversee the implementation of these new laws.
Foreign Exchange Management Regulations were also passed in 2014, and the Securities and Exchange Commission of Myanmar was formed (see Capital Markets overview). In 2015 a new Myanmar Accountancy Council Law was enacted, which empowers the council to regulate the country’s accounting industry. This tightens the standards of financial sector reporting, moving the banks closer to the adoption of full International Financial Reporting Standards. Collectively, these measures garnered international praise. The Financial Action Task Force, for instance, removed Myanmar from its list of countries with strategic weaknesses in anti-money laundering and combating financing of terrorism in 2016.
In 2016 two more important regulations came into force: the Financial Institutions Law (FIL) and a new regulation on mobile financial services. The FIL, enacted on January 25, 2016 incorporates the Basel Core Principles and gives the CBM broad powers over the banking sector, including regulations governing the criteria for licensing, good corporate governance and for procedures in the event of non-viability and dissolution. The FIL promotes transparency and accountability, partly by setting specific responsibilities for bank directors and senior managers, as well as establishing an updated set of accountancy standards.
A series of fundamental ratios and limits has now been set, with the law applying to all banks, development banks, non-bank financial institutions and “scheduled institutions” operating in the country, with the exception of Myanmar Agriculture Development Bank. These scheduled institutions include rural development banks, agricultural banks and microfinance institutions licensed under the 2011 Microfinance Law, as well as credit societies and postal savings banks established before the FIL.
The FIL dictates that customer loans should not exceed 20% of a bank’s core capital and that 25% of a bank’s profits must be transferred to a reserve fund every year until the fund is equivalent to 100% of the bank’s paid-up capital. The minimum ratio of liquid assets to current liabilities is also established by the CBM, with the regulator last setting the rate at 20% in July 2017. In addition, the minimum paid-up capital is set at MMK20bn ($15.3m) for domestic banks and $75m for foreign bank branches. The CBM also sets the minimum capital adequacy ratio, with this at 10% of risk-weighted assets as of early 2018.
With the FIL passed, the CBM then moved onto the enabling bylaws. These were issued in July 2017, with all institutions covered by the FIL given a further six months to comply. The first monthly financial reports from the banks are required to begin in early 2018. The law has been widely welcomed, with its commitment to Basel Core Principles seen as a major step forward in securing the sector’s future. However, there has been some criticism regarding the high liquidity ratios and mandatory transfers to the reserve fund, as well as the cost of licences, especially for foreign banks.
These factors may negatively affect liquidity, in turn affecting the ability of banks to grant loans to businesses. It may also deter international banks from entering the market, as the $75m minimum paid-up capital requirement allows a foreign entity to open just one branch. Furthermore, these banks are limited to the wholesale market, providing loans to domestic banks and foreign corporations based in the country (see overview).
Domestically, some existing banks may not have the necessary paid-up capital to meet the minimum requirement of MMK20bn ($15.3m). A 2016 report from consultancy firm Roland Berger estimated that six domestic entities were short of meeting this requirement, which could pose problems once the enforcement of the FIL begins in 2018.
Despite potential issues, the limits and restrictions demonstrate the CBM’s desire to advance cautiously. This strategy stems from the Asian financial crisis of 1997-98, Myanmar’s own banking problems in 2003 and the global financial crisis of 2008-09. In addition, it is likely the CBM is seeking to establish a level playing field in advance of easing operating conditions for foreign banks, while also ensuring that all banks are well capitalised and international lenders have a long-term commitment to the country.
The FIL also heralds a change in mobile banking regulations. These had previously consisted of the 2013 Mobile Banking Directive, which allowed for such services, but mandated that mobile financial services companies partner with a licensed bank before offering any products. Customers were also required to open a bank account. These stipulations effectively limited the mobile segment to the established banks, restricting development somewhat. After the new FIL was enacted in January 2016, the CBM issued a new Regulation on Mobile Financial Services that allows mobile network operators and non-bank financial institutions to apply for mobile financial services licences.
The new regulations were aimed at widening financial sector participation, as mobile services offer an inroad for populations outside the traditional banking catchment areas to access formal financial services. They also provide safer, electronic payment systems via a mobile phone, helping the country move away from traditional cash payments. The regulations include stringent rules for the operation of such services, in order to protect customers, with the CBM taking care to examine each application for a licence. As such, only two operators had received licences by August 2017: Money, which is a joint venture between Norway’s Telenor, First Myanmar Investment and Yoma Bank; and M-Pitesan, a partnership between Cooperative Bank and Qatar’s Ooredoo.
Although there have not been many new issuances, several foreign and domestic financial technology (fintech) firms are working under the mobile banking licences already obtained by local banks. These include TrueMoney, Myanmar Mobile Money, Ongo, 663 and myKat. Working in conjunction with a bank provides certain benefits, for instance a mobile banking licence allows a daily transaction limit of up to MMK1m ($764), while a mobile financial services licence limits daily transactions to MMK200,000 ($153). Having international links can provide other advantages as well. TrueMoney, for example, is part of Ascend Group, a spin-off from the Thai conglomerate True Corporation, which gives it strong financials and enables it to work in the remittances business. Thailand is home to many workers from Myanmar who use the service to send money home to their families, increasingly via their mobile phones.
Mobile financial services are already proving popular in Myanmar. Wave Money reported some 250,000 customers using their service in October 2017, only a year after its launch. Meanwhile, OK Dollar, which is operated by hotel and logistics conglomerate Super Group, has around 100,000 customers.
The year ahead may well see additional financial regulations and bylaws issued, with many banks awaiting new rules on foreign participation, further interest rate liberalisation, a widening of banking services as well as more challenging requirements. The pace of change may not be rapid enough for some, but it reflects the cautious and measured approach that authorities are taking. A major transition is under way and the shift from a highly controlled economy to a liberalised market will inevitably be challenging. Setting a roadmap for this transition would be beneficial for planning as it would decrease uncertainty about the path ahead. How the regulations are implemented will be most crucial, however, if customers are to have confidence in the new offerings, whether these products are provided by established banks or fintech players.
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