Local firms struggle to access foreign loans
Home-grown businesses are finding it hard to take advantage of Central Bank regulations allowing them to borrow from abroad because international banks cannot assess their creditworthiness.
LOCAL firms are finding it hard to take advantage of Central Bank regulation allowing them to borrow from abroad, because international lenders lack sufficient information to assess their credit worth, according to financial industry heads.
Myanmar companies have been able to borrow from overseas since the country passed a Foreign Exchange Management Law in 2012. That allows registered local firms to ask Central Bank permission for a foreign loan.
“The problem for local companies seeking foreign loans is that the foreign banks don’t have enough information about them,” said U Win Thaw, director general of the Foreign Exchange Management Department at the Central Bank. “When it comes to lending, banks or other lenders need to know about their client.”
Gathering information on a local Myanmar firm’s financial situation and credit history is difficult, and the country has no system of third-party credit assessment.
A credit bureau – an agency that collects credit information on borrowers and sells it to lenders – has been in the works for years. Legislation that would allow the Central Bank to create a bureau is now with the Attorney General’s Office.
But even once the legislation is passed it will take another year to get the bureau up and running, according to members of the credit bureau committee.
One solution for local firms is to use a guarantor, a route some firms have used in the past, said U Win Thaw.
Myanmar companies can approach a local bank to act as a guarantor, but such arrangements are rare, said U Mya Than, chair of Myanmar Oriental Bank.
International lenders still want to appraise the creditworthiness of the borrower, and also the credit standing of the local bank acting as a guarantor, he said.
Lenders willing to act as a guarantor typically require collateral equal to over 100 percent of the value of the loan, said U Mya Than.
Many large corporate customers have land or buildings they can use, but in most cases the international banks are still reluctant to lend the money, he said.
Nor are all local firms qualified to take out foreign loans. The Central Bank requires companies to have at least US$500,000 in capital, and a regular source of foreign currency income.
If the firm lacks a source of foreign currency it has to demonstrate it can repay the interest in local currency, and provide a risk management plan in case of exchange rate fluctuations.
Local firms seeking an overseas loan are also prohibited from having debt equal to more than three-to-four times the value of their equity.
When approving foreign currency loans the Central Bank also checks with the Myanmar Investment Commission to make sure that the local company has invested at least 80pc of the total planned investment it outlined during the company registration process.
All this is in addition to the Central Bank’s examination of the maturity, size and interest rate of the loan, and the use of proceeds, said U Win Thaw.
Pedestrians walk past small businesses in downtown Yangon.