Foreign participation: Liberalisation continues in a bid to boost credit growth


As part of ongoing efforts to liberalise the financial services sector and increase credit to the private sector, the Central Bank of Myanmar (CBM) has introduced regulations to facilitate foreign investment in domestic lenders. In January 2019 the CBM issued Regulation No. 1 of 2019, allowing foreign banks and financial institutions to hold equity of up to 35% in local banks, starting in January 2020. To obtain approval from the CBM, a domestic lender will have to provide a copy of the agreement with the overseas institution along with the proposed equity ratio. This change is expected to enhance competition, improve service quality and bring gains in lending. Prior to the reform, the Myanmar Companies Law, which came into force in August 2018, made it possible for foreign investors to hold a minority stake of up to 35% in domestic firms, although this had not yet been applied in practice in the banking sector, as the CBM had maintained strict supervision. The reform is expected to enable consolidation over the medium term, though concerns remain over the rights of minority shareholders and the level of control foreign investors will be able to have over banks.

The move follows another significant step forward in the liberalisation of the financial services sector, with the then-Ministry of Planning and Finance announcing in January 2019 that foreign companies would be allowed to offer life and non-life insurance lines in Myanmar starting in 2019 (see Insurance chapter).

Retail Services

Similarly, the retail banking segment will open its doors to foreign participation in 2021, with the CBM announcing a new round of licensing. Since 2013 the CBM has approved licences for foreign banks to establish representative offices and carry out limited business activities, and in November 2018 the business activities were broadened to include wholesale banking services. Wholesale banking entails providing services between merchant banks and other financial institutions. Under the new round of licensing, foreign banks will be able to apply for a subsidiary bank licence that permits wholesale domestic banks activities and, from January 2021 onward, onshore retail banking.

Credit Bureau

As well as providing a more competitive financial services landscape, the CBM is looking to boost lending, with low credit access posing an obstacle to growth across the economy. Indeed, in the most recent OBG CEO Survey, released in July 2019, 82% of Myanmar CEOs described credit access as difficult or very difficult. Key to improving lending is the creation of Myanmar’s first credit bureau. In May 2018 the central bank awarded the Myanmar Credit Bureau (MCB) a licence to collect credit records and provide them to lenders. The bureau aims to develop the risk framework that banks use for lending, which is largely based on secure collateral. Speaking to press after the agreement was inked, U Zaw Lin Aung, former chairman of the MCB, said, “This is our first step. Before this, we observed the way local banks maintain their credit files. We have studied the technical aspects, so we believe we will be able to provide services in nine to 12 months”. The MCB is expected to begin operations in the first quarter of 2020. In late 2018 the bureau signed a deal to purchase a credit bureau software licence from credit risk services provider Equifax New Zealand.

Interest Rate Cap

The CBM’s policy of capping interest rates at 13% – which meant lenders were not able to charge more for higher-risk clients and therefore often avoided providing credit – and strict collateral requirements have also been viewed by industry players as hindrances to private sector credit growth.

Nevertheless, the sector regulator has moved to address this challenge, giving financial institutions permission to extend loans to clients at a maximum lending rate of 16% for unsecured loans as of February 1, 2019. Furthermore, clients will be able to apply for the rate with or without collateral. “This extra room in interest rates will improve the sector and will make loans viable, unlike the previous secured collateral rules,” U Thein Zaw Tun, managing director of CB Bank, told OBG.