Financial Reforms Seen in Myanmar

By PATRICK BARTA, March 23, 2012 ... 

BANGKOK—Myanmar's government is likely to allow foreign banks into the country by 2015 and to also give Myanmar's central bank more independence in setting rates, a senior official at Myanmar's biggest commercial bank said Friday.

REUTERS/Soe Zeya Tun/Files

Myanmar's financial system remains primitive by international standards. The country only recently got its first ATMs, and credit cards aren't widely used. The country employs a confusing multiple-exchange-rate system, though Myanmar's government is widely expected to change that in favor of a single exchange rate soon, possibly as early as next month.

U Than Lwin, deputy chairman of KBZ Bank and a former deputy governor of the Central Bank of Myanmar, said he also believes it Myanmar's central bank will likely cut interest rates because rates in the country are higher than in neighboring Southeast Asian nations. The present deposit rate is 8%, he said, while lending rates are set at 13%. He didn't say exactly when he thought rates could go lower.

Economists have long worried Myanmar's central bank lacks the independence necessary to manage a more robust and open economy, but steps to bolster the bank could resolve those concerns. Mr. U Than Lwin said he expected the banking law to be done in the next several months. "Right now, it follows fiscal policy, which is not proper," he said.

Mr. U Than Lwin was speaking at an investment seminar in Bangkok organized by Colliers International Thailand and Universal Link Services Co., as well as the Nation Group, a media company.

The moves are expected as part of a broader opening of Myanmar's economy, which began last year following the country's first national election in 20 years in 2010. The government since then has released hundreds of political prisoners, legalized the main opposition party, and pursued a number of other reforms aimed at attracting more foreign capital after decades of harsh military rule.

Myanmar remains subject to Western economic sanctions, including U.S. rules that block financial transactions with the country. But many analysts believe Western governments will ease those rules or drop them entirely in the coming year in recognition of the country's reforms.

"If there is any doubt, you can rest assured that this time around we are really changing," Mr. U Than Lwin said. "There is political will from the government."

Mr. U Than Lwin said that KBZ Bank—Myanmar's biggest commercial bank in terms of assets—was hoping to get ahead of those changes by expanding its branch network. He said Myanmar's banks were working to install Swift systems so they can initiate correspondence relationships with foreign banks, especially in Southeast Asia and Japan. He said they were also negotiating with companies such as Visa for possible applications in Myanmar, though he didn't elaborate.

He also said a new foreign-investment law, which is expected to offer tax holidays for foreign investors and make it easier to set up businesses there, would be done sometime in the next few months.

Despite those changes, Mr. U Than Lwin said "it will be in the interests of foreigners to wait for the final touches on these laws" before rushing into the country.

He said that under existing financial laws in Myanmar, there are still no provisions for foreign investors to have local borrowing facilities, though they can open accounts in local banks. But by 2015, he said, it is likely Myanmar will let offshore banks operate in the country to help foreign investors fulfill liquidity needs.

Earlier this year, Standard Chartered PLC Asia head Jaspal Bindra said in Hong Kong that he would be "very happy" for the bank to return to the country, where it used to have a presence. Mr. Bindra said Myanmar and North Korea are the only markets in Asia where the bank does not have operations.

Write to Patrick Barta at patrick.barta@wsj.com

http://blogs.wsj.com/deals/2012/03/23/myanmar-to-open-up-banking-industry/