Myanmar is a country undergoing rapid transformation. After 50 years of political and economic isolation, the country has opened up and re-entered the global community. Following elections in March 2011 that resulted in the election of President Thein Sein, Myanmar has experienced two years of growth and development. International sanctions have been lifted and there has been a sharp increase in foreign investments, much to the delight of Myanmar’s people. Today there is a buzz and an uncontainable sense of optimism throughout the country.
But after a half century of isolation, Myanmar still faces many obstacles. Every sector in the country now has to play catch-up. The banking sector in particular has to develop and modernise in order to meet the requirements of locals and foreign investors alike. Steady developments have been made to Myanmar’s banking sector in the last two years. These developments may seem basic and fundamental to the international financial community, but the speed in which they have been implemented in Myanmar has been remarkable and is a testament to the people dedicating themselves to advance the country.
In November 2011, the Central Bank of Myanmar (CBM) started liberalising and removing restrictions, and began to allow private banks to engage in foreign exchange and to establish foreign counters. In April 2012, the CBM floated the kyat, Myanmar’s currency, which allowed better facilitation of international trade and better served the country’s heavy reliance on agricultural exports.
Most countries have either lifted or suspended economic sanctions on Myanmar over the last two years. Most notably, in July 2012, the United States Treasury Department issued a general license that allowed US companies to invest and provide financial services in Myanmar provided that they report their activities. This has allowed credit card companies like Visa and MasterCard, as well as money transfer companies like Western Union, to enter the Myanmar market through select Myanmar banks.
In November 2012, a new Foreign Investment Law was enacted, and was later accompanied by the Foreign Investment Rules in January 2013. The new law and rules established an investment regime in Myanmar that outlined the investment practices for foreign investors and provided information on entering into joint ventures. The new laws envisage not only a wide range of new business lines where foreign investment can operate at 100 percent equity ownership, but also favourable tax incentives, longer lease of real estate, and vigorous standards for environmental and social protection.
In July 2013, President Thein Sein signed a new Central Bank of Myanmar Law giving the CBM more autonomy from the Ministry of Finance and Revenue. As of the time of writing, there has not been any public announcement on the finer points of the new legislation, including the date of its coming into operation, but it has been widely stated that the new legislation would make the central bank an independent body. There will be new rules and regulations that govern the Central Bank introduced within three months of the new law coming into force.
Today, no foreign banks are allowed to operate in the country, except to open a representative office. However, there are indications from the government that the expected rules and regulations may provide foreign banks with opportunities to participate through joint venture formation with local banks before eventually being allowed to operate as subsidiaries, and then full branches.
The opinion of many domestic bankers is that Myanmar banks and their staff need more time to improve before competing with the foreign banks. They need to improve their infrastructure, increase their capital and undergo more training in international banking practices before being capable of competing with large international banks. Myanmar should follow the example of the other ASEAN countries that have restricted banking competition in order for local banks to develop and effectively compete.
Myanmar is still very much a cash-based society. Only 20 percent of the estimated bankable population of 60 million has entered the formal banking system. The key for the future of the banking sector is to bring these people into the banking system. Development of the local banks is crucial for the growth of the banking sector in Myanmar.
Banking in Myanmar
Today, Myanmar has four state and 19 private banks. Due to nationalisation of the banking system during the socialist era from to 1962 to 1988, and the bank liquidity crisis, the CBM tightly regulated the sector. Private banks in particular were limited in what they were permitted to engage in.
It was only in November 2011 that the CBM began liberalising and awarded 11 private banks Authorised Dealer Licenses that allowed them to engage in basic international banking.
Kanbawza Bank (KBZ) was one of the banks awarded with the license. Being the most successful bank with the largest capital base in Myanmar, KBZ is the market leader with strong retail banking operations supported by an extensive network, as well as the largest number of branches of any bank in the country. KBZ’s retail banking helps small- and medium-sized enterprises in Myanmar by providing much needed financing, and is largest single lender in the country, providing a large portion of domestic loans for fiscal
year of 2012-13.
Similarly, KBZ has been rapidly building up its wholesale and international banking services, providing a wide range of financial services to facilitate the needs of large local corporates (LLCs) and international clients including multinational corporations operating in Myanmar. Currently, KBZ provides corporate banking coverage to MNCs and LLCs in assisting them with treasury, cash management, trade services, corporate financing, international remittance and related services.
KBZ is a part of the KBZ Group of Companies founded by Chairman Aung Ko Win. Along with banking, KBZ Group operates successfully across various businesses such as mining, aviation, insurance, agriculture, infrastructure, trading, manufacturing, healthcare and hospitality.
Throughout KBZ’s history, KBZ Group has contributed a great deal of donations in various areas such as health, education, religious, social and disaster relief and has therefore been recognised as the biggest donor in Myanmar for its efforts in corporate social responsibility and philanthropy. KBZ Group’s chairman was awarded the first prize among the entrepreneurs serving the highest tax payments to the State Budget Revenue, and donating the largest amount for the sectors mentioned above, the first time such an award was bestowed to an individual during the present government era. Similarly, KBZ was recognised through various accolades, such as the highest taxpayer and biggest donor awards by the Myanmar Government for the last several years.
Predicted growth sectors
Myanmar has massive potential for growth (see Fig.1). It has a 60-million-strong population and is blessed with vast arable land and abundant natural resources. Being wedged between the economic powerhouses of China and India, and with access to half a billion or more people within the region, Myanmar’s economic ascension is widely expected. The predicted growth sectors are tourism, mining and energy, telecommunications, agriculture and manufacturing.
The most obvious sector for growth in Myanmar is in tourism. As the economic and political situation improved, tourists en masse began to visit the country. 2012 saw a 67 percent increase in tourist numbers from the previous year. The trend will only continue as more international airlines open or increase their routes to Myanmar’s three largest airports in Yangon, Mandalay and Nay Pyi Taw. Myanmar has many diverse attractions for tourists, ranging from pristine beaches to snow-capped mountains with ancient temples scattered all throughout the country. The sector is set to benefit in a big way over the coming years. There is also high potential for growth in the mining and energy sectors.
Myanmar is abundant in precious and semi-precious stones and is famous all over the world for its jades and rubies. The country currently produces 90 percent of the world’s jade, which caters to the lucrative Asian market. In terms of energy resources, Myanmar has large deposits of onshore and offshore oil and gas. Gas exploration is currently being done which could yield much bigger reserves, and could turn Myanmar into the energy hub of the region.
The telecommunications sector in Myanmar is also set to take off. In June 2013, Myanmar’s Government awarded telecommunications licenses to Norway’s Telenor and Qatar’s Oreedoo to improve Myanmar’s telecommunications infrastructure. Companies in the sector that can provide services around the license winners are also set to benefit.
In terms of agriculture, Myanmar possesses an arable land size totalling 12.25 million hectares. Agriculture already is the sector employing the majority of people in the country, but productivity per worker is still very low. There is a lot of potential to increase the output and create more efficiency within the sector.
Manufacturing is another sector with potential for growth. Wages in Myanmar are comparatively low, giving the country an advantage in attracting foreign companies that wish to set up manufacturing facilities in the country. Myanmar has a large and young working-age population that is suited to this type of work.
In order to quicken the pace of growth in these promising sectors, KBZ is well positioned to provide much-needed financing solutions to both local corporations as well as multinational corporations, who are looking to take advantage of the last remaining frontier in Asia.
Similarly, KBZ Group has been operating successfully across these expected growth sectors and is looking to work with international partners with an aim of transferring technical knowhow and enhance capacity building.