As Myanmar’s economy continues to grow, foreign investors will always have ample opportunity to establish their business presence. In the next few months, follow us as we look into Myanmar’s individual services sector, highlighting their specific challenges, opportunities and its general outlook in the long term.
Sectors we have covered:
Hotels and Tourism Part I – Tourism: an Economic Generator & Infrastructure Constraints
Hotels and Tourism Part II – Opportunities, Government Support & Outlook
Telecommunications – More than Just Talk-time, Challenges, Opportunities and Outlook
Transportation – Better Transport to Boost Economic Growth, Challenges, Opportunities and Outlook
Retail – Myanmar’s Economy Fueling the Retail Boom, Challenges, Opportunities and Outlook
A Look into Myanmar's Services Sector: Banking & Finance
Following the economic reforms brought by Myanmar's democratic transition, investors are strategically looking for productive investment opportunities in the country.
Sectors we have covered:
Hotels and Tourism Part I – Tourism: an Economic Generator & Infrastructure Constraints
Hotels and Tourism Part II – Opportunities, Government Support & Outlook
Telecommunications – More than Just Talk-time, Challenges, Opportunities and Outlook
Transportation – Better Transport to Boost Economic Growth, Challenges, Opportunities and Outlook
Retail – Myanmar’s Economy Fueling the Retail Boom, Challenges, Opportunities and Outlook
A Look into Myanmar's Services Sector: Banking & Finance
Following the economic reforms brought by Myanmar's democratic transition, investors are strategically looking for productive investment opportunities in the country.
Banking & Finance: the Economic Driver
Banks play a major role in financial markets by engaging high-growth activities that generate prolific investment for the economy. But the US sanctions imposed on Myanmar since May 1997 have hindered investments and export-import financing.
However in May 2016, state-owned banks namely, Myanma Economic bank (MEB), Myanmar Investment and Commercial Bank (MICB) and Myanmar Foreign Trade Bank (MFTB) were removed from the US sanction list. This only marks the beginning of the rise of the banking and finance sector in Myanmar.
Prior to the lifting of sanctions against the three state-owned banks, the Financial Institutions Law was enacted on 25 January 2016, has defined the prudential norms, a stronger regulatory framework and contain detailed guidelines for both domestic and foreign financial institutions. It is hoped that with the introduction of this new law, both banks and financial institutions in Myanmar will progress towards the overall development of the sector.
The following chart shows the increase in net profit of the banking sector for the five fiscal years from 2007 to 2012.
Banks play a major role in financial markets by engaging high-growth activities that generate prolific investment for the economy. But the US sanctions imposed on Myanmar since May 1997 have hindered investments and export-import financing.
However in May 2016, state-owned banks namely, Myanma Economic bank (MEB), Myanmar Investment and Commercial Bank (MICB) and Myanmar Foreign Trade Bank (MFTB) were removed from the US sanction list. This only marks the beginning of the rise of the banking and finance sector in Myanmar.
Prior to the lifting of sanctions against the three state-owned banks, the Financial Institutions Law was enacted on 25 January 2016, has defined the prudential norms, a stronger regulatory framework and contain detailed guidelines for both domestic and foreign financial institutions. It is hoped that with the introduction of this new law, both banks and financial institutions in Myanmar will progress towards the overall development of the sector.
The following chart shows the increase in net profit of the banking sector for the five fiscal years from 2007 to 2012.
Source: Central Bank of Myanmar Annual Report 2011-2012
Observe that the profits recorded in FY2010-2011 doubled from the previous FY. This is partly because of the presence of 19 local private banks that have been granted licenses to provide domestic commercial banking services from 30th November 2010 onwards. With further developments planned for this sector, the net profit is projected to continue on an increasing trend year on year.
In addition to financial intermediaries such as banks, insurance companies and pension funds; government treasury bonds are issued to facilitate the development of Myanmar's financial market. Moreover the country have also launched its first ever stock exchange "YSX" which have commenced since 25th March 2016 in spite of having only a few listed companies in the exchange.
Challenges
Even as the presence of foreign banks pose challenges, local banks have their own set of challenges to deal with such as human resources, technological infrastructure, image building, implementation of the new Financial Institutions Law and the exchange rate. This was cited by a panel discussion during the launch of GIZ Banking report: "Myanmar's Financial Sector: A Challenging Environment for Banks".
And although local banks have already introduced various payment modes such as through cards, the internet and mobile banking, by and large the locals still prefer to make their transactions in cash. With little reliance on banks, these cash transactions impact the interest rates, exchange rates and the inflation rates.
Opportunities
In efforts to accelerate economic development within the country, the Central bank of Myanmar granted operational licenses to a number of international banks in the past few years. It is hoped that with the presence of these international banks, it will improve the country's banking infrastructure. However this move of granting foreign banking licenses to international banks did come under resistance from local banks. Although these banks aim to support their fellow countrymen; local bank raise concerns that this would erode their market share. Addressing the concerns, local banks are still permitted to provide loans to local businesses, despite the lower costs offered by foreign banks. This somewhat gave the local banks added secutity over their market share.
Joint ventures and wholly foreign-owned enterprises currently reap the full benefits directly from these foreign banks. However, as foreign banks are allowed to lend to local banks and financial institutions, this gave local banks additional support should they consider expanding their operations.
Forecast
The banking and finance sector is vital for any economy; as a well-established banking and financial system strengthens the ongoing reforms and minimizes the sector's risk. A fully functioning banking and finance sector will be conducive to a nation's economy.
Many local and international businesses are looking to obtain loans and this have created an increase in demand to borrow from banks. Although banks; both local and foreign, have already begin to issue loans, more of such banks and lenders are welcomed to set-up operations in Myanmar, in anticipation of the increase in businesses within the country.
Ultimately, as Myanmar's banking and finance sector seeks further liberalization, it will continue to face immense challenges at the initial stages. Nevertheless, there is always significant opportunities for foreign direct and portfolio investments as Myanmar continues very vigorously to improve and enhance its banking and financial systems.
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Editor’s Note: For those who have missed out on the other services sectors, click below to read:
Hotels and Tourism Part I – Tourism: an Economic Generator & Infrastructure Constraints
Hotels and Tourism Part II – Opportunities, Government Support & Outlook
Telecommunications – More than Just Talk-time, Challenges, Opportunities and Outlook
Transportation – Better Transport to Boost Economic Growth, Challenges, Opportunities and Outlook
Retail – Myanmar’s Economy Fueling the Retail Boom, Challenges, Opportunities and Outlook
In the next blog post discussing Myanmar’s services sector, we will be looking at the telecommunications sector.
Click here to read on the Telecommunications sector.
In addition to financial intermediaries such as banks, insurance companies and pension funds; government treasury bonds are issued to facilitate the development of Myanmar's financial market. Moreover the country have also launched its first ever stock exchange "YSX" which have commenced since 25th March 2016 in spite of having only a few listed companies in the exchange.
Challenges
Even as the presence of foreign banks pose challenges, local banks have their own set of challenges to deal with such as human resources, technological infrastructure, image building, implementation of the new Financial Institutions Law and the exchange rate. This was cited by a panel discussion during the launch of GIZ Banking report: "Myanmar's Financial Sector: A Challenging Environment for Banks".
And although local banks have already introduced various payment modes such as through cards, the internet and mobile banking, by and large the locals still prefer to make their transactions in cash. With little reliance on banks, these cash transactions impact the interest rates, exchange rates and the inflation rates.
Opportunities
In efforts to accelerate economic development within the country, the Central bank of Myanmar granted operational licenses to a number of international banks in the past few years. It is hoped that with the presence of these international banks, it will improve the country's banking infrastructure. However this move of granting foreign banking licenses to international banks did come under resistance from local banks. Although these banks aim to support their fellow countrymen; local bank raise concerns that this would erode their market share. Addressing the concerns, local banks are still permitted to provide loans to local businesses, despite the lower costs offered by foreign banks. This somewhat gave the local banks added secutity over their market share.
Joint ventures and wholly foreign-owned enterprises currently reap the full benefits directly from these foreign banks. However, as foreign banks are allowed to lend to local banks and financial institutions, this gave local banks additional support should they consider expanding their operations.
Forecast
The banking and finance sector is vital for any economy; as a well-established banking and financial system strengthens the ongoing reforms and minimizes the sector's risk. A fully functioning banking and finance sector will be conducive to a nation's economy.
Many local and international businesses are looking to obtain loans and this have created an increase in demand to borrow from banks. Although banks; both local and foreign, have already begin to issue loans, more of such banks and lenders are welcomed to set-up operations in Myanmar, in anticipation of the increase in businesses within the country.
Ultimately, as Myanmar's banking and finance sector seeks further liberalization, it will continue to face immense challenges at the initial stages. Nevertheless, there is always significant opportunities for foreign direct and portfolio investments as Myanmar continues very vigorously to improve and enhance its banking and financial systems.
----------
Editor’s Note: For those who have missed out on the other services sectors, click below to read:
Hotels and Tourism Part I – Tourism: an Economic Generator & Infrastructure Constraints
Hotels and Tourism Part II – Opportunities, Government Support & Outlook
Telecommunications – More than Just Talk-time, Challenges, Opportunities and Outlook
Transportation – Better Transport to Boost Economic Growth, Challenges, Opportunities and Outlook
Retail – Myanmar’s Economy Fueling the Retail Boom, Challenges, Opportunities and Outlook
In the next blog post discussing Myanmar’s services sector, we will be looking at the telecommunications sector.
Click here to read on the Telecommunications sector.
