The Central Bank of Myanmar has allowed nine foreign banks to commence limited banking operations in the country, opening the financial sector to international participation.
According to a Moody's Credit Outlook, the entry of foreign banks in Myanmar continues a liberalization in the investment regime and will diversify the trade and investment financing options available to foreign companies operating in the country.
The move will improve access to capital, allowing Myanmar to more readily finance its imports and its current-account deficit, which, according to the International Monetary Fund, widened to 4.4% of GDP in the fiscal year that ended in March 2013, from a surplus of 0.4% in fiscal 2008.
"This is a credit-positive measure because it will immediately improve the country’s access to external finance and ultimately contribute to the growth of the domestic financial sector. It also signals the government’s advancement of a broad reform agenda that the sovereign (unrated) began in 2012," says Moody's.
The nine banks selected among 25 applicants are all based in the East Asia-Pacific region: Japan’s The Bank of Tokyo-Mitsubishi UFJ, Ltd., Sumitomo Mitsui Banking Corporation and Mizuho Bank, Ltd.; Australia and New Zealand Banking Group Ltd.; Thailand’s Bangkok Bank Public Company Limited; China’s Industrial & Commercial Bank of China Ltd.; Malaysia’s Malayan Banking Berhad; and Singapore’s United Overseas Bank Limited and Overseas-Chinese Banking Corp. Ltd.
"Until now, no foreign banks had been allowed to operate in the country for more than 50 years, although 34 have representative offices in Myanmar. These nine banks now have 12 months to fulfill commitments outlined in their original proposals and to comply with central bank regulations," says Moody's.
Although the granting of licenses paves the way for an expansion of Myanmar’s financial sector, license recipients will initially only be able to provide banking services to international corporations.
Foreign banks will be prohibited from engaging in retail banking and will not be allowed to lend in local currency unless they partner with a local bank.
Despite the restrictions, the entry of foreign players will add an element of competition to Myanmar’s banking system, which is currently dominated by four state-owned banks that account for nearly three quarters of total assets.