Bank takes reform steps
Myanmar Agricultural Development Bank will move to the Finance Ministry as part of a state-owned enterpise reform agenda.
THE government will place cashstrapped state lender Myanmar Agricultural Development Bank (MADB) under the Finance Ministry’s control, and plans to corporatise the bank as part of an economy wide investigation into state-owned enterprise reform.
The government is preparing to move MADB from under the Ministry of Agriculture, Livestock and Irrigation and place it under the Ministry of Planning and Finance, Agriculture Minister U Aung Thu told parliament this week.
The agricultural lender – the only affordable source of finance for Myanmar’s farming households – struggles to stay profitable, and relies on loans from fellow state-owned enterprise Myanmar Economic Bank (MEB) and the country’s Central Bank. Agricultural industry officials have roundly criticised the bank for the small size, slow speed and low volume of its lending.
Deputy Minister U Maung Maung Win at the Ministry of Planning and Finance told The Myanmar Times that the government’s Economic Committee had already agreed to the proposal to move the bank under Finance Ministry control, but only on the condition that MADB moves to corporatise.
Corporatisation is the process of imposing a corporate structure on a state entity. This usually involves introducing a board of directors, management and shareholders, which can be a precursor to full privatisation.
The government’s next step is to conduct a feasibility study into how corporatisation will work, which is likely to take several months and will include analysing the bank’s financial position, U Maung Maung Win said.
The deputy minister said MADB was one of the first entities being tackled as part of a review the government launched earlier this year into which state enterprises it would reform, corporatise or leave under state control. Reducing wasteful spending and privatising “appropriate” state-owned enterprises (SOEs) was the first pillar in the National League for Democracy’s economic strategy, which it published ahead of last year’s elections.
Many SOEs are a huge burden on the state’s budget. MADB borrowed K800 billion from MEB and K400 billion from the Central Bank in the 2015-16 fiscal year at interest rates of 4 percent. U Myo Tint Tun, agricultural ministry deputy permanent secretary, said this fiscal year MADB’s borrowings had risen to K1.2 trillion from MEB and K500 billion from the Central Bank.
MEB, meanwhile, has its own issues with profitability. That lender has been operating at a loss since 1990 – and K79 billion of the state budget was used to prop up the bank in fiscal year 2013 alone, according to a 2015 report from German development agency GIZ.
In the medium term MADB will have to continue relying on MEB loans, U Maung Maung Win said. The bank has only K9.5 billion in capital, but is aiming to provide K1.7 trillion in agricultural loans in 2016-17.
But in time MADB’s ownership and funding structures will be altered, potentially allowing for shares to be issued to the public, he added. The feasibility study into MADB’s corporatisation would also examine whether some of the bank’s debts will have to be restructured, U Maung Maung Win said.
But the shift to the Ministry of Finance and Planning will also involve efforts to improve MADB’s ability to provide loans to farmers in the short term, he added.
Because MADB first has to seek funding from MEB and the Central Bank, this creates additional steps in the lending process and makes it hard for MADB to turn the state funding into agricultural loans in time, said U Aung Thu.
The agricultural bank’s move to the Finance Ministry will place it under the same ministry as MEB.
“We predicted the system would have to change,” said U Aung Thu. “I want to inform the public that we are carrying out [the reform] under Economic Committee scrutiny to make sure that the same issues do not happen again in the future.”
Since the new government took office MADB has come under increasing fire from MPs angry at the bank’s sluggish delivery of agricultural loans.
“It’s getting worse and worse,” said Pyithu Hluttaw representative U Nyan Hein (NLD; Thanbyuzayat) on September 2. “Even though [MADB] was launched to help farmers they are not getting loans that cover cultivation expenses, and recent loans were only delivered on August 10 which isn’t in time to help with the sowing period [in June].”
Pyithu Hluttaw representative U Myint Oo (NLD; Thanatpin) said that farmers in his constituency were denied agricultural loans despite having farmland ownership certificates and no outstanding debts to the state bank. U Myint Oo said MADB had issued a directive for Bago Region withholding loans from farmers that had started the application process this year.
U Aung Thu said that the ministry had released no such directive, and would be disbursing loans to all farmers that had applied. “As we aim to lend to farmers in full, we will disburse loans to all farmers [that apply],” he said.
Women plant seedlings in a rice field.