Myanmar is increasingly becoming a top investment destination within the Association of South-Eastern Nations (ASEAN). But this may change, a new report argues, if Myanmar does not address five key challenges facings its finance sector. Htet Tayza comments below.
According to Eleven Myanmar, a local news portal, this Myanmar’s Financial Sector: A Challenging Environment for Banks report was compiled by GIZ banking. At its launch, bankers and economists discussed the five core challenges which the nation needs to overcome to remain a top ASEAN investment destination. These are human resources, technology and infrastructure, building trust, implementation of the new Financial Institutions Law, and the nation’s exchange rate.
GIZ’s Senior National Expert on Financial Sector Development, San Thein, said Myanmar has South-East Asia’s least-developed economy. Commenting, he said: “Capital and insurance markets still only play a minor role, and the financial sector continues to be dominated by banks. Despite the current reforms, the legal framework as well as financial infrastructure of the banking industry still has a long way to go in order to meet international standards.” To facilitate development, Thein added, Myanmar should reform it banking sector, which accounts for half of the finance industry’s assets.
GIZ’s National Expert on Financial Sector Development, Salai Om Ki, argued that to attract foreign direct investment, which Myanmar wants to hit US$140bn by 2030, it should ensure that the finance sector is viewed positively. But Myanmar ranked 131 out of 140 nations in the World Economic Forum’s latest Global Competitiveness Index, placing at the bottom end for ease of access to loans. The nation also placed 170 out of 190 countries in the World Bank’s latest Doing Business report.
Expanding, he said: “According to the WB report, when foreign investors are thinking to invest in Myanmar, there are 169 countries ahead of us, and only 20 countries behind us. We have to be aware that investors have many other options.” Om Ki added that Myanmar has no credit-rating agency, so its credit-guarantee programmes are weak, compounding these problems. Other issues currently facing the sector, he argued, include limited access to basic financial services. This makes it harder for consumers to take out loans and save, thus limiting their contribution to economic growth.
In Asia Green Development Bank Consultant Soe Thein’s opinion, it is crucial that the Central Bank of Myanmar’s (CBM) independence is cultivated to facilitate the country’s finance industry development. Explaining, he said: “Whether a financial sector is mature or not entirely depends on how independent the central bank is. CBM needs to set proper prudential regulations as soon as possible.”
Suggesting how CBM can help the industry thrive, he noted: “It is important to ensure fair competition [in Myanmar’s banking sector]. But if it becomes excessive competition, they are unintentionally destroying themselves. Excessive competition is frequently seen among local banks… And fear factor is very extreme here. We do not need to worry about foreign banks’ entry. Only competition will improve local banks. And foreign banks cannot stand alone. They also need local partners.”
But Myanmar Oriental Bank’s ex-Chairman, Mya Than, wondered whether Myanmar’s banks are ready to form these partnership and embrace regional integration. Expanding, he commented: “Local banks need to focus on capacity building. They need to adopt modern concepts in their ways of doing business… And the central bank needs to undertake necessary reforms very rapidly and boldly.”
Bolstering the Kyat
Talking at the launch, bankers indicated that these problems will be compounded by the depreciation of Myanmar’s Kyat currency against the US Dollar. This makes the currency weaker, so it is harder for Myanmar’s poorer citizens to buy foreign imports and ensure fiscal health. Speaking, Soe Thein noted: “Fundamentals are very weak in Myanmar, and the US currency [is getting] stronger after the recent presidential election. So Kyat depreciation will continue over the next two to three years. We cannot stop it, as it is beyond our control. So we need to find ways to withstand the affects.”
Agreeing, Mya Than added that this is creating a black market, which is currently too influential in Myanmar. Than argued that it is more important to ensure market stability, than to get the exchange rate under control. He said that the CBM needs to resolve inflationary pressures, via co-operating with Myanmar Ministries such as Planning and Finance, to ensure stability. Going on, he said: “The black market must be terminated to control the exchange rate and to maintain macroeconomic stability. But it will take time. Now it is very important to make informal players as weak as possible.”
Myanmar needs to utilise financial technology (fintech) to aid industry development and encourage foreign investment. There is some progress – for example, the CBM is currently working with the IFC to develop a secured-transactions network for Myanmar’s small to medium-sized enterprises (SMEs), to make it easier for them to access vital expansion financing. By harnessing the power of fintech, Myanmar could also provide more convenient financial services to citizens, reducing traditional distrust to promote financial inclusion. As fintech advances, start-ups like Wave Money, which facilitates mobile money payments, could help Myanmar remain a top ASEAN investment destination.
Image courtesy of Thar Lun Naing.