Government reforms have bettered Myanmar’s economic prospects, and the country’s banks are demonstrating impressive growth
Despite the country’s macroeconomic performance having long trailed its neighbouring Southeast Asian nations’, Myanmar now offers a range of auspicious opportunities for investors and businesses alike. Myanmar is now “set to become one of the next rising stars in Asia,” says Moo Sun, COO of Ayeyarwady Bank.

Since the inauguration of President Thein Sein in 2011, Myanmar’s economic landscape has been completely transformed by a slew of swift and uncompromising social and economic reforms. “Myanmar is emerging from five decades of isolation – both economically and politically,” says Sun. “With its rich natural resources, abundant labour force and strategic location, the country shows great potential for growth.”

Having long ranked among the poorest nations in Southeast Asia, the IMF has recently dubbed Myanmar the “next economic frontier,” based upon an impressive GDP annual growth rate of 6.3 percent and the various progressive government reforms. Efforts to liberalise a lacklustre economy have propelled consumer confidence skyward, as GDP growth looks to reach 6.5 and 6.7 percent annually in 2013 and 2014 respectively – provided government reforms maintain their momentum.

Neighbouring competition
“The changes that have befallen Myanmar, however, have happened very recently, which means that if you were to compare its growth to that of neighbouring Southeast Asian nations it would appear it has certainly lagged behind in quite a few areas,” concedes Sun.

“For example, in terms of 1994 to 2010 annual GDP growth, neighbouring Cambodia and Malaysia equated to a yearly average of 7.8 and 7.2 percent, whereas ours was nearer 4.7 percent, according to the IMF. I think in terms of inflation, however, we’re actually doing relatively well in keeping to single digits – our current rate stands at approximately 4.2 percent, as opposed to Cambodia’s 5.5 percent equivalent.

“However, in terms of banking penetration, we’re still a good distance behind our Southeast Asian counterparts, who generally boast a much greater number and density of branches. However, I’d like to add that Myanmar has the capacity to facilitate growth above and beyond its current means. We’ve more than enough resources to fuel infrastructural development and population increase, our labour costs are extremely competitive, and our location acts as the perfect gateway to the surrounding Southeast Asian nations, China and India.”

Despite Myanmar having fallen short of Southeast Asia’s loftier economic heights, “extensive changes, instigated by President Thein Sin in March 2011, have ensured a measure of social and economic stability for a tremendous amount of individuals and businesses in Myanmar and beyond,” says Sun.

Recent reform
The government’s various social reforms included securing a ceasefire agreement between rebel groups, releasing a number of political prisoners, and implementing a New Foreign Investment Law intended to suspend and uplift sanctions on international trade. However, beyond the social implications of reform are the vast changes that have befallen Myanmar’s financial sector, which has perhaps undergone the greatest change of all since March 2011.

“The total number of private banking branches stands at 420, representing a rise of 128 over the previous year and offering an indication of the pace at which Myanmar’s banking sector is growing,” says Sun.

The Central Bank of Myanmar is currently in the midst of a major reorganisation and modernisation process, after a string of new laws have granted the institution complete operational autonomy. A series of upcoming reforms look to strengthen the regulatory and supervisory framework of Myanmar’s banking industry, while easing the restrictive prudential regulatory requirements obstructing growth and profitability – for example, uplifting the capital to deposit ratio. Lesser reforms have also installed a national switch to facilitate interbank payments, and overhauled the country’s foreign exchange rate system.

“The central bank is working towards developing a sound, market-based financial system meant to enhance resource mobilisation for greater financial intermediation and to support broad economic growth. Its monetary policy is to ensure low and stable inflation, a market-based interest and exchange rate regime, and to create stable liquidity by encouraging domestic savings and increases in foreign direct investment,” says Sun.

As a result of recent reforms, Myanmar’s currency maintains a stable exchange rate of MMK977 to the US dollar; foreign reserves have increased; foreign representative offices have grown; financials for the past two years have been positive; and the nation’s banks have demonstrated an increase in profitability and earnings.

The McKinsey Global Institute has predicted that the country’s economy could quadruple in size by 2030, so it appears there’s no shortage of confidence in Myanmar’s ability to expand. The financial sector is set to play a key role in fuelling this projected growth through mobilisation of savings for investments.

Embracing modernisation
Perhaps the best representative of Myanmar’s growing financial sector is Ayeyarwady Bank (AYA), the foundations of which are built upon the same principles underpinning the country’s ongoing reform. “It’s in our interest to abide by the modernisation process at large throughout the country’s financial sector and beyond,” says Sun. “Although a relatively new player in the banking fraternity, AYA has made significant inroads since its inception three years ago. The bank has grown exponentially since its establishment, boasting 43 branches, a customer base of over 150,000, and a staff of 1,600 as of June 2013.”

Since 2011, AYA has signalled its intent to improve upon all aspects of its banking operations, having increased its assets from $95m (at the rate of $1 to MMK977) in 2011 to $536m in June 2013, and increased revenues by 5,630 percent to $17.6m over the same period. The bank boosts a strong franchise covering domestic banking, international banking and cards services. “With total assets of over $500m, AYA has earned its status as one of the top tier banks in Myanmar. Its success in such a short space of time is testament to the country’s pent-up demand for financial services and to the bank’s strategy in gaining a sizeable measure of the market.”

AYA’s achievements are many, and illustrate the ways in which the firm has spearheaded developments in Myanmar’s financial sector. The firm was the first to launch a money transfer service for migrant workers between Malaysia and Myanmar; the first – and as yet the only – to implement a fully centralised core banking system for all its branches; and it remains a market leader in aligning operations and strategies to corporate responsibility.

“Our commitment to Myanmar extends beyond our clientele and to the wider populace, as we strive to uphold the country’s welfare by a number of methods,” says Sun. By working with various local groups, the Ayeyarwady Foundation, founded by the chairman of the bank, engages with the local community in bettering their livelihoods, whether it be through donations, social work or improving education. In keeping with the UN Global Compact initiative, the bank abides by the UN’s 10 universally accepted principles in areas of human rights, labour, environment and anti-corruption and will continue to do so for as long as it remains. Speaking on Myanmar’s overall business climate, Sun says: “A commitment to causes of sustainability and corporate social responsibility will surely continue nationwide, provided the current government continues to implement progressive reforms.”

The bank’s commitment to people encompasses its employees and clients alike, as it remains engaged with banking talents on both a domestic and international basis. “We have incredibly strong human resource programmes meant for recruiting, training and maintaining staff loyalty,” says Sun. Its service, he says, “is of the highest quality at every customer touch point,” a statement backed by the bank’s ability to build long-lasting relationships with its corporate customers.

Speaking of the bank’s key success factors, Sun draws attention to AYA’s “unwavering support of shareholders and strong leadership of board of directors, particularly AYA’s chairman”, the history of “embracing good practices in governance, risk and compliance,” and its ability “to aggressively grow branch network and electronic channels.” Sun also highlighted that AYA is “using technology as a key business enabler and aims to improve overall customer experience through use of technology and by introducing cutting-edge software systems.”

Despite Myanmar’s status as a relatively immature emerging market, AYA boasts an expansive range of products and services, including but not limited to: demand deposits, loans and advances, remittances, cash management, and electronic and international banking. Having demonstrated an ability to effectively manage required capital and liquidity and establish and leverage on strategic alliances, AYA possesses the necessary qualities to lead Myanmar’s thriving financial sector.

Above all else, AYA’s success has been determined by the firm’s ability to capitalise on the many and various opportunities afforded by Myanmar’s thriving economic landscape. Aided by government reforms, and pioneering companies such as AYA, the country looks to become Asia’s next economic hot bed.