thoidaianhhung
Administrator
The Union of Myanmar
Ministry of Finance and Revenue
The Financial Sector Development in Myanmar
Ministry of Finance and Revenue
The Financial Sector Development in Myanmar
Introduction
The financial system in Myanmar has been restructured since 1989-90 at the dawn of the market oriented economic system of the nation. In order to establish a sound and efficient financial system, the financial sector has been liberalised, granting private sector participation in the financial activities. Necessary amendments of the existing laws were made and new laws were promulgated in banking, customs, taxation and insurance areas. Simultaneously, the government lays the foundations for a capital market through the issue of treasury bonds and organizing a joint venture firm, the Myanmar Securities Exchange Centre.
Ministry of Finance and Revenue
At the apex of the financial system is the Ministry of Finance and Revenue (MFR). The highest power to control and manage all the affairs pertaining to the nation's fiscal and monetary policies as well as the mint and security printing operations is vested in the MFR. The MFR is responsible for overall administration of the government's fiscal and monetary policies. MFR is composed of state owned financial institutions and organizations of government finance.
The State Owned Financial Institutions
1. Central Bank of Myanmar (CBM)
2. Myanma Economic Bank (MEB)
3. Myanma Foreign Trade Bank (MFTB)
4. Myanma Investment and Commercial Bank (MICB)
5. Myanma Agricultural Development Bank (MADB)
- (transferred from the Ministry of Finance and Revenue to the
Ministry of Agriculture & Irrigation in 1996
to more emphasize on agriculture development)
6. Myanma Small Loans Enterprise (MSLE)
7. Myanma Insurance (MI)
Government Finance Organizations
1. Budget Department
2. Customs Department
3. Internal Revenue Department
4. Pension Department
5. Revenue Appellate Tribunal
Banking System
Banking system is at the core of the financial system and is the fulcrum of monetary policy. The institutional framework of the banking institutions, along with the Central Bank of Myanmar, constitutes the monetary system in Myanmar. The basic principle of the banks is to cause the effective mobilisation and allocation of fund resources in the economy in order to help promote economic growth, safeguard stability and raise the living standard of the people.
The Central Bank of Myanmar
As the monetary authority, the Central Bank of Myanmar (CBM) formulates and implements monetary policy, with the aim to preserve the value of the Myanmar currency, to promote efficient payments mechanisms and the liquidity, solvency and proper functioning of a soundly based financial system and to foster monetary, credit and financial conditions conducive to the orderly, balanced and sustained economic development.
Monetary policy: The CBM currently keeps a prudential policy so as to maintain the macro economic stability in the economy and to promote domestic savings. At present, the CBM mainly uses such monetary policy instruments as reserve requirements and interest rate, and to a certain extent, open market operation. The CBM has initiated the issuance of 3 years and 5 years treasury bonds bearing interest of 13.5 per cent and 14 per cent per annum respectively, as the initial step for establishing capital market in Myanmar. With a view to initiating the securities market, the Myanma Economic Bank has formed a joint venture security firm - the Myanmar Securities Exchange Centre Company Ltd. with Daiwa Institute of Research Ltd., Japan.
Banking policy: The CBM takes a banking sector development strategy with three phases as follows:
Phase 1: - promoting the institutional development;
- promoting the skills and efficiency among the domestic banks with a medium term, while foreign
banks are allowed to open their representative offices in Myanmar; initially foreign banks are
allowed to open representative offices which may work only as liaison offices of their head quarters;
Phase 2: - permitting selected domestic banks to run joint venture bank with foreign banks;
Phase 3: - permitting foreign banks to open bank branches and operate banking activities in Myanmar.
(The CBM also aims to improve payments system development, transforming the banking system
from a manual system into a computerised one, and thus computerisation, installing ATM machines
and using credit cards have been started in the system)
20 domestic private banks are now in operation and 46 foreign banks have been permitted to open their representative offices. Until now, 4 Memorandum of Understandings have been signed between the local banks and foreign banks to run joint venture banks.
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Joint Venture Bank Guidelines by the Ministry of Finance and Revenue
1. Foreign bank must have rep. office in Yangon
2. JV Bank will be a separate legal entity
3. Minimum foreign capital in US $ 10.0 mn
4. Minimum foreign equity of 35%
5. Equity participation should be fair and reasonable
6. Local bank's equity may be either in US $ or in kind
7. To conduct only foreign banking services
8. Approval by the Myanmar Investment Commission
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The Central Bank of Myanmar
Legal Basis
1. The Union of Burma Bank Act 1952
2. The Bank Law 1975
3. The Central Bank of Myanmar Law 1990
Main Responsibilities
- acting as the sole issuer of domestic currency, either bank notes or coins;
- acting as a banker to the Government;
- acting as advisor to the Government in respect of such economic matters as the Government may require including economic development policies and plans, and the State budget;
- acting as advisor and agent of the Government for the issuance of governmental securities;
- formulating and implementing monetary policy;
- inspecting, supervising and regulating the financial system so as to ensure its sound and safe operation and development;
- acting as a banker for the financial institutions and to foreign governments and international agencies;
- implementing the exchange rate policy of the State and as agent of the Government, controlling foreign exchange transactions;
- managing the international reserves of the State and carrying out necessary measures to ensure a stable and viable balance of payments position;
- performing the transactions resulting from the participation of the State in intergovernmental organizations in the banking, credit and monetary sphere and undertaking all the responsibilities in the name of the Government dealing with the aforesaid organizations on behalf of the Government.
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Types of Financial Institutions
There are four types of financial institutions in Myanmar. (Article 5 of the Financial Institutions of Myanmar Law 1990)
1. Commercial Bank -
Commercial banks provide general banking services collecting demand deposits with chequing privileges collecting demand deposits with terms not more than one year, and providing short term credit operations;
2. Investment Bank or Development Bank -
Such a bank accepts time deposits with terms exceeding one year and gives loans for working capitals;
3. Finance Company -
Finance companies provide funds for the purchase of goods or services with the funding other than deposits from the public;
4. Credit Societies -
Credit societies engage in financing to individual members of the societies, for consumption, production or commerce, using funds collected in members' accounts.
Operations of Banking Institutions
(Article 25, the Financial Institutions of Myanmar Law, 1990)
- borrowing or raising of money;
- lending or advancing of money either upon or without security;
- drawing, making, accepting, discounting, buying, selling, collecting and dealing in bills of exchange, promissory notes, draft, bills of lading, railway receipts, debentures, and other documents of title and debt securities, whether negotiable or not;
- granting and issuing of letters of credit and travellers cheques;
- buying, selling and dealing in bullion and species;
- buying and selling of foreign exchange including foreign bank notes;
- purchasing and selling of bonds or other forms of securities on behalf of customers;
- receiving securities or valuables for safe custody;
- collecting and transmitting money and securities;
- acting as agents of local governmental authorities of the central bank;
- providing guarantees for extensions of credit and performance of business, etc;
- financing or assisting in financing any business undertaking, either existing or new, through syndicates or otherwise;
- undertaking trust business and the administration of estates as executor or trustee;
- acquiring an equity interest in other institution in accordance with the Financial Institutions of Myanmar Law;
- undertaking other financial services activities.
Key Provisions in Banking Regulations
• Establishing a bank: A bank or a financial institution, whether state owned or jointly owned by State and private, or private owned, can be established and operated with the prior approval of the Central Bank of Myanmar. (As per Article 12 of the Financial Institutions of Myanmar Law)
Licensing Procedure
- A financial institution wishing to operate in Myanmar shall firstly be established as limited liability company in accordance with the Myanmar Companies Act as well as with the Special Company Act, 1950; (Article 3 of the Financial Institutions of Myanmar Law)
- Application for the license to operate is to be put up together with a feasibility study to the Central Bank of Myanmar; (Article 14 (a) of the Financial Institutions of Myanmar Law)
- Minimum Paid-up Capital Requirements -
(a) Commercial Bank - Kyat 30 million
(about US$ 5 million)
(b) Investment or Development Bank - Kyat 60 million
(about US$ 10 million)
(c) Finance Companies - Kyat 8 million
(about US$ 1.3 million)
(d) Credit Society - Kyat 2 million
(about US$ 0.3 million)
(Article 8 of the Rules Relating to Financial Institutions of Myanmar Law)
- Financial institutions shall be administered by the respective Board of Directors, and financial institutions shall be the memorandum of association and articles of association; (Article 21 & 22 of the Financial Institutions of Myanmar Law)
• Prudential Provisions
- Minimum Reserve Requirements:
i. 10 per cent of demand deposit and 5 per cent of time deposit are required to be maintained by each bank as the minimum reserve requirement;
ii. 75 per cent of the required reserve is to be deposited with the CBM, and 25 per cent of the required reserve may be maintained in the form of cash; (Article 58 of the CBM Law, Regulations 3 & 4 of Regulations for Financial Institutions)
iii. Required reserves for a bank to maintain with the CBM must not exceed 35 per cent of the total liabilities of the bank; however, in the event of serious inflationary pressure, the CBM may increase the 35 per cent ceiling of required reserves.
- Liquidity Control: Banks are required to maintain the level of their liquid assets against their eligible liabilities at not less than 20 per cent. (Article 58, 59 of the Central Bank of Myanmar Law, Central Bank's Instruction No.4)
- Capital Adequacy Ratio: The relation between the risk-weighted assets and the capital and reserves of a financial institution shall not exceed ten times. (Article 31 of the Financial Institutions of Myanmar Law ) (Basle Accord Capital Adequacy Ratio is 8 per cent)
- Legal Lending Limit: Financial institutions shall not lend more than 20 per cent of their capital plus reserves to a single individual, an enterprise or an economic group. (Article 32 of the Financial Institutions of Myanmar Law)
- Credit Control:
- In carrying out credit operation, financial institutions shall comply with the principles of risk avoidance, diversification and liquidity, as well as with directives issued by the Central Bank; and they shall acquire and keep the legal documents for the respective credit operation. (Article 28, 29 of the Financial Institutions of Myanmar Law)
- The banks are required to build up and maintain a general provision account amounting to at least 2 per cent of total outstanding loans/ advances at the end of the year, and they are also required to maintain specific provision for doubtful and/ or bad loans on case by case basis. (Article 11(d) of the Financial Institutions of Myanmar Law, Central Bank's Instruction No.6)
- Interest Rate: Minimum interest rates payable on savings deposit, saving certificate and time deposit shall not be less than 3 per cent below the Central Bank rate; maximum interest rate chargeable on loans and overdrafts shall not be more than 6 per cent above the Central Bank rate. (Article 61, the Central Bank of Myanmar Law, Regulation 12, 13 of Regulations for Financial Institutions). A copy of the interest rate structure in Myanmar is attached. A-1.
Bank Supervision
The Central Bank of Myanmar is responsible for licensing, inspecting, supervising and regulating financial institutions and may give directions as may be necessary to ensure the solvency and soundness of the financial institutions.
Reports: Banks are required to submit the following reports to the CBM:
a. Weekly i. Weekly reserve position of the bank
ii. Liquidity ratio
b. Monthly i. Monthly balance sheet of the bank
ii. Income and Expenditure Statement
iii. Capital Adequacy Ratio
c. Quarterly - no- performing loan statement
d. Annually - Annual Report
State Owned Banks
Myanmar Economic Bank (MEB) which has the largest commercial banking network in Myanmar maintains the deposit base (over K 70 bn) of any financial institution and is heavily weighted towards domestic savings. the bank's loan portfolio is directed to 70% private sector, 10% cooperative and 20% government employee borrowers. Myanma Economic Bank has a total number of 314 branches throughout the country. Its paid up capital amounts to K 220 million.
The Myanma Foreign Trade Bank concentrates upon international banking business, rendering banking services for export, import, guarantee issuing, remittances, credit card services, sale and purchase of foreign currencies and traveller's cheques, collection of foreign currency cheques and drafts. Myanma Foreign Trade Bank maintains correspondent relations with 30 foreign banks from all parts of the world. Offering current accounts and fixed deposit accounts, Myanmar Foreign Trade Bank has 63003 number of foreign exchange accounts. Myanma Foreign Trade Bank gives interest on fixed deposit accounts at the annual interest rate of 2.5 per cent.
The Myanma Investment and Commercial Bank (MICB) specialises in corporate and investment banking to local customers and foreign companies. The bank accepts deposits in both Kyat and foreign exchange, and undertakes foreign trade transactions. In 1995, MICB had an estimated Ks 1.3 bn and US$ 113.5 mn in deposits supporting over Ks 2.8 bn in loans.
Private Banks
Besides the typical commercial banking business, the private banks have introduced higher margin businesses such as longer term deposit and lending instruments, hire purchase facilities, current accounts, credit and ATM cards, and mortgage loan facilities.
Private Banks
1. First Private Bank
2. Myanmar Citizens Bank
3. Myawaddy Bank
4. Co-operative Bank
5. Asia Yangon Bank
6. Asia Wealth Bank
7. Kambawza Bank
8. Innwa Bank
9. Yadanabon Bank
10. Yangon City Bank
11. Tun Foundation Bank
12. Universal Bank
13. Yoma Bank
14. Myanmar Oriental Bank
15. Myanmar Mayflower Bank
16. Myanmar Livestock and Fisheries Development Bank
17. Myanmar Industrial Development Bank
18. Sibin Tharyar Yay Bank
19. Co-operative Farmers Bank
20. Co-operative Promoters Bank
The Role of Foreign Banks
There are currently over 46 foreign banks which have received permission to open representative offices in Myanmar. These offices cannot conduct any commercial banking business yet. They often monitor Myanmar based projects to whom their offshore parent banks have extended financing. Offshore loans for Myanmar projects usually require offshore guarantees although there is sufficient legal standing to permit the use of Myanmar assets as collateral.
Myanma Insurance
The Myanma Insurance Law was enacted in 1993. According to Myanma Insurance Law, eight classes of insurance namely; Life Insurance, Marine Insurance, Aviation Insurance, Fire Insurance, Engineering Insurance, Third Party Liability Insurance & Comprehensive Motor Insurance and Oil & Gas Insurance are allowed to underwrite. The Myanma Insurance (MI) offers coverage for companies and individuals for all types of insurance in both kyats and foreign exchange (except life and health, for which only kyat-based coverage is available). Steps are being undertaken to liberalize the insurance sector to allow private sector participation in insurance business. Consequently, the Insurance Business Law was enacted in 1996 and its related Rules was issued in 1997. For the time being, foreign firms are permitted to open three representative offices. Myanma Insurance has signed two MoUs to form joint venture company. In the near future, Myanmar private firms will be allowed to under write kyat-based polices and foreign insurance companies to issue policies, especially for capital assets. Reinsurance, risk assessment and financial banking are carried out offshore with MI retaining an average 10-15% of the risk.