The Process of Financial

Sector Reform in Myanmar(Retrospect and Prospects with special

reference to Banking Sector Reform)

An Analytical Review by

U Than Lwin

Deputy Chairman (2)

Kanbawza Bank Ltd.

New Myanmar Investment Summit 20-21 June 2012

Park Royal, Yangon

1

" An Anatomy of Fast Changes in Myanmar "

Historical Perspective (I)

2

• Myanmar wedge between two

economic giants, China and India

3

• Should benefits the people from spill-

over effects

• People never enjoy these benefits partly

due to corruption lack of infrastructure

and adoption of "beggar thy neighbour"

policy by some neighbouring countries

• Also partly due to sanctions imposed by

US and EU

Historical Perspective (II)

• Government Release all political prisoners,

including Daw Aung San Suu Kyi

• Later brought NLD into political process to and

create creditable opposition in Phuthu-Hluttaw

(parliament) through free and fair by-election.

• Signed peace agreements with almost all ethnic

minorities armed groups paving the way for

national reconciliation.

• New labour laws were enacted to restore more

basic rights to workers.4

Fast Changes in Myanmar

Since March 2011

Strong and Sincere political will of

democratic government for

change

Opposition parties keen for change

Myanmar people full of vigour for change due to painful past

5

Sequencing of Reform Process

• Inauguration of new democratically elected

government: March 2011

Initiating of Reform Process

Political Reform Agenda (priority)

Economic and Social Reform

Agenda

(Secondary)

Political Stability

enhanced

6

Chronology of Earlier Financial Reform

Process that Failed

Political Crisis, 1988

Change to military government

Adoption of Market – oriented Economic System

FDI Law, 1988

New Banking Laws; 1990

7

Implementation of Financial Reform

Financial Sector

Reform (1990-1998)

(B)

FEC Introduced as Alternative FX

rate (1993)(C)

Acceptance of Rep. Offices of Foreign Bank

(1993)

(D)

Some Private Bank given AD: FX

licence (1996-1998)(E) MOU bet. 8

Myanmar private banks & foreign counterpart (JV

initiative)

(1996-98)

(F) Introduction of new products in private banks:

credit card/ ATMs/ on line

system

(A)

Emergence of Private Banks

(1992)

8

• All financial reform measures were

totally withdrawn except existence of

private banks left with basic banking

structure

• 1 private banks deregistered due to

mismanagement

• 3 private banks deregistered under

AML infringement

9

10

Emergence of democratic civilian government first time in (50) years (Nov 2010 April 2012)

1st stage of Reform Strategy for National Development

Political Reform Process (Priority)

All politaical prisoners released including Daw Aung San Suu Kyi

Opposition NLD Party enters Pyithu-Hluttaw (Parliament) through by election

Opposition NLD Party enter Pyithu Hulttawheaded by Daw Aung San Suu Kyi

Political objectives largely achieved/ On-going democratic process

Signing of Peace Agreements with Ethnic Minorities

11

12

1st stage of Reform Strategy for National

Development (March 2011 - April2012)

Economic Reform

including financial reform

(C)

Introduction of FX Auction Market

(D)

Private Banks granted AD Licences/ Money

Change Licences

(E)

Unification of Exchange Rates (April 1, 2012) first time Since 1977

(A)

Institutional Build-up (MDRI/Advisory Groups/

Parliamentary Commissions)

(B)

Solutions seek thru' Workshop/ Discussions

etc.

13

Laws Governing in Myanmar

New Foreign Investment Law (May

be approved in July 2012 by Parliament)

New SEZ Law

Tavoy Investment Zone Law

(Redrafting)

New Banking and FX Laws

(Now in Parliament)

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Entry Possibilities for Foreign Banks in Myanmar

Joint Venture Banks

Offshore Banks

Strategic

Partnership (ownership of

Shares in local banks)

Full branch (or) Subsidiary

15

Challenges Facing Myanmar Banks

• Need for some banks that are given

AD FX licences

(a) Highly trained bank professionals

are in dire needs.

(b) Some banks have hired ex-foreign

banks but the need to build up

capacity at all levels keenly felt16

Compliance and Sound Banking

a) Weakness in international

accounting standards needs

to be addressed in Myanmar

banks

b) Conformity to Basel I & II

essential for present17

Governance Structure

• The need for more independent

bank management

• The need for Myanmar banks to go

public as only very few had done so

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Risk Management

• Weakness in installing Risk

Management/ System

• The need for Highly trained

professionals in loans committee of

banks

• Due to Central Bank's strict

regulation, high liquidity is now

maintained19

Independency of Central Bank

• Central Bank of Myanmar abide by

decisions of Ministry of Finance and

Revenue (MOFR)since 1963

• No check & balance between fiscal

policy and monetary policy

• Authorities now working for Central

Bank to enjoy independent status

away from MOFR20

Insurance Business in Myanmar

(governed by the Insurance Business Law 1996 )

Now monopolised by Govt. solely owned Myanmar Insurance

Will soon permit (6) domestic private insurance cos.

Initial capital K 46 billion required each (about $ 55 million)

Entry of Foreign Insurance Cos. (need to consider before 2015)

May select class of insurance to permit21

Laws on Intellectual Property Rights are now drafted

Foreign Investment Law & FX Law it be approved

Banking Laws revised & soon be approved

Central Bank Agreement with Tokyo Stock Exchange &

Daiwa Research to Set Up Stock Market in Myanmar

Central Bank Setting up (MPU) later to deal with Visa/

Master China Union Pay Cards

Computerization of

Central Bank

Present measures taken by

Government

Prospects

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THANK YOU

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