Reg­u­la­tory roadmap needed for bank­ing sec­tor re­form

The Myanmar Times - - Business - KANG WAN CHERN chern@mm­

MYAN­MAR needs to es­tab­lish a reg­u­la­tory roadmap for the bank­ing sec­tor. This will give the lo­cal banks more clar­ity on the progress and tim­ing of up­com­ing reg­u­la­tions, al­low­ing them to gear up for fur­ther re­form and growth.

“Car­ry­ing out reg­u­la­tory re­form at an un­mea­sured pace can cause trou­ble,” said Azeem Az­imud­din, CFO of Aye­yarwady Bank, dur­ing a panel at the 2017 Myan­mar Global In­vest­ment Fo­rum in Nay Pyi Taw to­day.

In Myan­mar, the speed at which new fi­nan­cial reg­u­la­tions were meted out by the Cen­tral Bank since 2013 had been ex­ac­er­bated by the Global Fi­nan­cial Cri­sis. That re­sulted in mis­takes that have in­hib­ited growth.

“For ex­am­ple, the Yan­gon Stock Ex­change (YSX) could have eas­ily also been a debt cap­i­tal ex­change or a for­eign eq­uity ex­change,” said Mr Az­imud­din.

To­day though, only four com­pa­nies have listed on the YSX since its launch less than two years ago. Mean­while, poor trad­ing liq­uid­ity and fall­ing share prices have de­terred new com­pa­nies from list­ing.

The ab­sence of for­eign par­tic­i­pa­tion on the ex­change is one rea­son for the bourse’s poor per­for­mance. How­ever, it is ex­pected that the new Com­pa­nies’ Act, which is now in the process of be­ing re­viewed and ap­proved, will en­able for­eign­ers to trade on the ex­change.

Bad tim­ing

Of course, reg­u­lat­ing the bank­ing sec­tor is nec­es­sary to pro­tect con­sumers. But it is the tim­ing of the reg­u­la­tions that has in­hib­ited growth. “The is­sue is the tim­ing of the reg­u­la­tions in re­cent years, not the reg­u­la­tions them­selves,” said Mr Az­imud­din. “If reg­u­la­tions are im­ple­mented when the econ­omy is slow­ing, it will be de­fla­tion­ary,” he said.

For ex­am­ple, Myan­mar’s new Fi­nan­cial In­sti­tu­tions Law, which re­quires banks to main­tain five per­cent of all de­posits as cash re­serves and im­poses a K20 bil­lion cap­i­tal re­quire­ment on li­censees, was en­acted in 2015.

The leg­is­la­tion was drafted to meet in­ter­na­tional stan­dards en­acted by the Basel Com­mit­tee fol­low­ing the 2008 global fi­nan­cial cri­sis. It was drafted by the pre­vi­ous govern­ment with the as­sis­tance of the World Bank.

In July, the Cen­tral Bank is­sued the reg­u­la­tions to gov­ern the con­duct of the do­mes­tic bank­ing sec­tor. They stated that all banks must main­tain a liq­uid­ity ra­tio above 20pc. Mean­while, new rules on large ex­po­sure loans will cap lend­ing to a sin­gle party at 20pc of share­holder eq­uity. Banks will also be re­quired to keep un­se­cured large ex­po­sure loan port­fo­lios at a cu­mu­la­tive value be­low to­tal share­holder eq­uity.

That ef­fec­tively pulled bil­lions out of cir­cu­la­tion at a time when busi­nesses needed the funds to ex­pand to meet the grow­ing de­mands of its econ­omy.

Bet­ter ac­cess

Nev­er­the­less, the bank­ing sec­tor has come a long way since 2015 and af­ter the New Cen­tral Bank Law was en­acted in 2013. For ex­am­ple, the num­ber of bank ac­counts and ATMs is ris­ing, while mo­bile bank­ing is be­com­ing more com­mon­place.

“We have done a lot of work in over­com­ing the present reg­u­la­tory back­ground, but it has not been fast or easy. This is seen by the rest of the mar­ket as a lack of re­form,” said Mr Az­imud­din. “In fact, many of us are do­ing our best to digi­tise the sec­tor. But reg­u­la­tory changes are needed be­fore things can move.”

Hal Bosher, CEO of Yoma Bank, agreed, “A reg­u­la­tory en­abling en­vi­ron­ment is ex­tremely im­por­tant for the banks. If you im­pose re­stric­tions and con­trols on the sec­tor, then there must also be an op­por­tu­nity for greater cap­i­tal for­ma­tion as well.”

He pointed out that busi­nesses to­day just need ac­cess to funds and are less wor­ried about the cost of fund­ing. “Even at 30pc un­der the mi­cro­fi­nance in­sti­tu­tions, peo­ple are still bor­row­ing. We need more fi­nan­cial in­clu­sion, which means pro­vid­ing more ac­cess to funds for peo­ple to bor­row,” he said.

Photo: The Myan­mar Times

A steel cut­ter man­u­ally slices a steel pipe at his work­shop in Yan­gon. Busi­nesses like th­ese are un­able to up­grade to ma­chines be­cause ac­cess to the cap­i­tal they need is lim­ited.

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