The banking system in Myanmar is key to modernising the financial system of the nation, in the face of its rapid economic growth.
An audit is soon to underway of state owned banks in Myanmar – the first of its kind for several decades. It’s hoped that the results of this comprehensive audit will clarify the best ways forward for the restructure of the banking sector.
Bank restructure is key to development
Aung San Suu Kyi’s government is working with the World Bank on the audit, which will herald a restructuring plan that is at once realistic but also doesn’t put too much strain financially on the government itself.
The four state banks in Myanmar have assets that are equivalent to a fifth of the gross domestic product of Myanmar (which is 463 billion). These banks will have to be completely overhauled in order to successfully expand the financial sector.
If private sector banks muscle in on larger shares of lending and borrowing, then it could put the state banks into a disturbing position, according to a report from the World Bank. It’s necessary to reform the banks now, to avoid the entire economic system being adversely affected.
Opening up the economy
Up until democratic reform began in 2011, state banks dominated the financial system for 50 years. From 2011, the economy has been opened up and various foreign banks have secured licences since 2014.
There are 13 foreign banks with licenses to lend and borrow in Myanmar, including the Industrial & Commercial Bank of China Ltd and Australia & New Zealand Banking Group. There are also around 24 internal private sector banks in Myanmar.
Myanmar Agriculture and Development Bank is the largest lender run by the government, with its origins going back to the 1950s. This bank provides more than two million farm workers with credit, mostly in the agrarian sector of Myanmar. The other main government lenders are the Myanmar Investment and Commercial Bank, the Myanmar Foreign Trade Bank and the Myanmar Economic Bank.
Data analysed by the World Bank shows that the private sector banks grew by 23.3 trillion kyat (equivalent to $17.2billion) from June 2015 to June 2016. During the same time period, state owned banks dropped 14 per cent to 16.5 trillian kyat.
Challenges facing the financial sector in Myanmar
The kinds of problems facing state owned lenders include outdated accounting practices and the urgent need to modernise the information technology infrastructure. There is also a concern surrounding the potential lack of clarity around data, and the total lack of risk management systems.
State Counsellor Suu Kyi is attempting to widen inclusion in the finance sector and attract investment in and economy that is still very much cash based. The 2003 crisis is likely to put off potential investment, and the focus will be on increasing trust in Myanmar’s financial sector as a whole. AS it stands, Myanmar’s expansion of GDP is Asia’s fastest at 8.1 per cent (this is an estimate by the International Money Fund).
Restructuring state banks with a view to potentially offering stakes out to foreign investment is the biggest challenge for Myanmar’s economic sector, according to Sean Turnell, a special advisor to Suu-Kyi’s government. And this starts with the audit, which is set to be completed sometime in 2017, with the entire restructuring process likely to take around five years.