Lo­cal firms strug­gle to ac­cess for­eign loans

The Myanmar Times - - Front Page - CHAN MYA HTWE chan­myahtwe@mm­times.com

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.

Photo: Nyan Zay Htet

Pedes­tri­ans walk past small busi­nesses in down­town Yangon.

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