Thailand’s commercial banks are pulling out all their firepower in a bid to be among the top candidates for licences in Myanmar as the once reclusive country prepares to open its doors to foreign banks by the end of this quarter.
Myanmar’s central bank has said that it would offer between five and 10 licences for foreign banks, each of which would be allowed to have a one-branch operation for corporate services only. The minimum requirement is a capital base of at least $75 million, pocket change for many of the banks that are looking to tap the potential available in Asia’s newest frontier market.
Authorities have said they are not ready to open the entire banking sector to foreign competition yet as local banks still need time to adapt to the new environment. However, greater access to corporate banking services, an area in which foreign banks excel, is needed now if the country is to attract more investors that can help it create a new era of prosperity.
U Sett Aung, the deputy governor of the Central Bank of Myanmar, has offered reassuring words to local banks, telling them they have nothing to fear in the near term.
“Retail banking for foreign banks will not be allowed, so local banks do not need to be worried when [foreign rivals] enter the local banking market,” he told parliament.
However, limiting foreign banks’ activities to corporate activities might not be enough to attract some players, as some already have representative branches operating in Myanmar and have been hoping to gain a bigger foothold.
The central bank has allowed 34 international banks to set up representative offices since 2011, a first step for those wanting to offer more financial services in the country in the future.
The four largest Thai lenders by assets — Bangkok Bank (BBL), Krungthai Bank (KTB), Siam Commercial Bank (SCB) and Kasikornbank (KBank) — already have a presence in the neighbouring country. They can expect further competition from regional banking giants such as DBS of Singapore and CIMB of Malaysia.
“We plan to have a presence in Myanmar within 2015,” Nazir Razak, the CEO of CIMB, said in a recent talk with Asia Focus.
NECESSARY STEP
Thai banks need to make bold moves next door, according to Prasarn Trairatvorakul, the governor of the Bank of Thailand.
“Yes, I agree we (Thai banks) should have a bigger presence in Myanmar as a lot of the trade both in the country and in the border areas is undertaken with Thailand; they all are our clients there,” he said in recent interview with Asia Focus.
Dr Prasarn noted that BBL had been operating in Myanmar for nearly two decades, serving clients that have operations in both Thailand and Myanmar, and it was only lately that its Thai peers were following suit.
“We are working behind the scenes to support the Thai banks’ move to venture outside home turf and Myanmar is a country where everybody wants a piece of the pie,” he added.
The arrival of foreign banks will help fill a big hole in the local financial system, said Sean Turnell, a professor of economics at Macquarie University in Australia.
“What does Myanmar need? What it needs desperately is capital – it’s got none,” he told Voice of America. “Essentially the banking system that’s there at the moment is smaller than one medium-sized bank in the US.
“Most foreign bank lending is going to be to the foreign multinationals anyway. A lack of a functioning financial sector is really high on their list of why they don’t go ahead and invest. So foreign banks in a sense deliver that. But in doing that they deliver something that the local banks don’t do anyway.”
Myanmar realises that liberalising the financial services sector is necessary to give its domestic banking sector a boost and to allow foreign and domestic companies greater access to the international capital market to help spur the economy.
According to Sett Aung, the go-slow approach in Myanmar is understandable, given that foreign banks in most other Asean countries also face restrictions on operations and branch numbers. The only exception is Singapore, which has become a global financial services hub as a matter of development policy given its lack of natural resources and manufacturing.
In most countries, foreign banks account for about a quarter of the lending that domestic banks offer, and Myanmar expects to see a similar ratio. “We’re allowing them to boost the country’s economy,” he said.
Despite reassurances from the central bank that foreign banks won’t be poaching their business, local banks are concerned that deep-pocketed foreign rivals might start poaching some of their best people. Salaries as well as opportunities for training an international exposure could prove very tempting.
However, Dr Maung Maung Lay, the vice-chairman of the Republic of Union of Myanmar Federation of Chambers and Commerce Industry, believes the impact should be minimal as the overall banking sector will become healthier.
“The Central Bank of Myanmar won’t allow foreign banks to undertake retail banking, so local banks will not see a change from their present situation, except they may not get new foreign customers, but they will retain their regular domestic customers” he said.
Since the military junta gave way to a quasi-civilian government in 2010, foreign direct investment (FDI) has been growing steadily in Myanmar. According to the Myanmar Investment Commission, FDI in the most recent fiscal year to March 31 increased to US$3.5 billion from $1.3 billion a year earlier and just $300 million the year before that.
China now tops the FDI table ahead of Thailand, which led for many years, mainly by virtue of the huge sums committed by PTT for oil and gas exploration.
According to figures from the Ministry of National Planning and Economic Development, there are more than 3,000 foreign company branches and 73 joint ventures registered in Myanmar, along with 37,000 domestic companies. These are the potential customers of the new banks that are looking to open up in the near future.
Many companies from Thailand are participating in the economic rebuilding of Myanmar, as are major corporations from Japan and other countries, and they need the services of their respective countries’ banking networks.
Border trade is one area in which Thailand has unique potential. Two-way border trade for the fiscal year to March 31 was worth about $700 million, with imports from Thailand enjoying the lion’s share.
Dr Maung Maung Lay said that traders on both sides of the border needed to be catered to, and this would be difficult for banks with just a single-branch presence in Myanmar.
“Thai investment in Myanmar has been increasing gradually with many Thai companies setting up branches or manufacturing operations here,” he said.
“That’s why Thai banks in Myanmar will have their regular customers as well. I don’t think there will be big risks [to local banks] from them setting up banks here.”
