CBM headed in right direction, bank development expected: experts
They added that recent actions taken by CBM early this year are seen as effective for the development of the banking sector.
Experts say if the central bank continues in this vein, it will help develop the financial sector as well as the economy.
“In recent years, we have seen many reforms made by CBM such as addressing the regulations of banks. As a consequence, efficient credit supply and strong economic development become more feasible,” financial expert Dr Aung Thuya told Myanmar Times.
In July 2017, CBM introduced rules requiring banks to submit reports on large debts, amended the way bank liquidity ratios are calculated, changed loans offered by banks to fixed-term loans, and tightened regulations on types of assets banks can hold.
The rules align with the Basel III set of international banking regulations developed by the Bank for International Settlements in order to promote stability in the international financial system.
On November 8, 2018, the CBM then announced that it would allow branches of foreign banks in Myanmar to offer financing for local businesses and operate other banking services.
This year so far, the CBM has permitted Myanmar banks to extend loans without the need for collateral at a maximum lending rate of 16pc. It also relaxed the requirement that banks allocate 5pc of their loans for home loans and allowed local banks to accept up to 35pc in equity investments from foreign banks or financial institutions.
To boost trade, CBM has designated the Chinese yuan and Japanese yen as international settlement currencies and now publishes a market-based reference exchange rate, or the aggregate of actual market rates for the day. Up until February 4, the CBM Reference Exchange Rate was based on the cut-off rate of its two-way interbank foreign exchange auction, which was introduced in 2012 to facilitate the development of the foreign exchange market.
Myanmar banks can now enjoy investments and loans from foreign banks.
On February 11, the CBM also issued a directive for banks to not have net open positions over 20pc of core capital.
These actions were all taken with the intention for local banks to gain more strength, said U Bo Bo Nge, vice governor of the CBM. “The main thing is for the banking sector to be more competitive in supporting businesses and to make more investments,” he said.
“Currently, the business sector needs financing, but the required loans are not being issued. That is why we have liberalising loan requirements to encourage banks to provide direct loans to people who really want to build the country’s production capacity,” he said.
In Myanmar, local banks are not as strong as international institutions, which limits their ability to lend and grow. To overcome this, the CBM is increasing oversight of local banks to ensure they become stronger, he said.
“Allowing banks to boost their capital by using methods such as issuing preferred shares like foreign countries and allowing local banks to form joint ventures with foreign partners will boost the local banking sector,” said U Bo Bo Nge.
However, local business people still face difficulties such high interest rates on loans and stiff requirements to obtain loans.
Although CBM has made efforts to encourage banks to lend more to businesses, it is still not practical to loosen interest rates more at present,” said U Bo Bo Nge
“We have a plan to liberalise interest rates for some sectors but not for every sector,” he said.
As a whole, the steps taken by the CBM since early 2013 have brought it closer towards its mandate of becoming an independent institution. Under the Central Bank of Myanmar Law, which was enacted in 2013, the CBM is expected to gradually become an independent organisation.
“The central bank is an independent organisation in every country. It takes responsibility for strong financial policies. Myanmar’s central bank is accelerating efforts to catch up,” said economist Dr Aung Ko Ko.
However, it is still necessary for the CBM to strengthen trade and commerce through banking, U Aung Ko Ko pointed out.
“The country’s trade partners are making their own efforts to improve trade facilitation and trade, certain efforts have to be made to stabilise the kyat’s value and commodity prices.” said U Aung Ko Ko.