Myanmar to let in foreign banks earlier

Asean banks can open branches in 2014, others can form joint ventures

 

Published May 19, 2012 ...

HOW LOW CAN IT GO?
Myanmar floated the kyat last month and wants to weaken the currency - which the IMF said is overvalued by as much as 40 per cent - and prevent further rises that could derail reforms to the country's economy

- REUTERS

[NAYPYITAW, MYANMAR]
FOREIGN banks will be able to form joint ventures in Myanmar by 2014, a year earlier than expected as foreign investors begin to size up one of Asia's most promising frontier markets.

Nay Aye, one of two deputy governors of Myanmar's central bank, said that in 2014 Asean banks will be allowed in, with those from other countries following later. But the central bank is seeking to change regulations to allow foreign banks from elsewhere to form joint ventures in 2014.

"The Asean integration process requires allowing qualified banks from Asean to open branches in the country with effect from 2014," he said, at the central bank's headquarters in the capital, Naypyitaw. "We are doing our best to be able to fulfil this requirement."

"Especially we are thinking of allowing joint ventures with foreign banks and branches of foreign banks. This is something we have to carry out after laying down firm rules, regulations and procedures," he added.

In 2015, the group is scheduled to form an EU-style economic bloc to lower barriers to the flow of people, products and, to some extent, capital across its borders.

In its report this month, the IMF said accelerating the modernisation of the financial sector was essential to prepare for economic integration in 2015.

But it also noted the authorities' worries about capacity constraints, in particular a lack of experienced local bankers: "They preferred a gradual liberalisation, indicating that many domestic banks are not ready for price competition, notwithstanding the need to prepare for Asean integration." Dozens of local and foreign banks thrived in the 1950s. But the industry withered after a 1962 coup.

Myanmar's central bank also wants to weaken its newly floated currency and prevent further rises that could derail reforms to its economy.

April's floating of the currency, the kyat, was the biggest economic policy step in a year of dramatic change. Managing the kyat poses an extraordinary challenge for reformers struggling to rebuild an economy blighted by decades of mismanagement and hurt by trade-crippling sanctions.

The IMF cautioned in a report this month that the kyat had been overvalued by as much as 40 per cent this year, and that any further rise could hurt the economy.

Asked if he would like to bring down the currency's value, Nay Aye said "yes", noting the central bank was developing a fund for carrying out open-market operations and stabilising the currency.

"In the near future, there will be a massive inflow of foreign direct investment, and as a result Myanmar's kyat is expected to appreciate. We will do our best to prevent this." - Reuters

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