Myanmar’s political front is not the only landscape that is undergoing a liberal revolution, its banking sector is experiencing rapid changes as well. Xiou Ann Lim reports

Closed off from the global economy under 50 years of military rule, Myanmar’s economy has been opening up in the last few years. This includes liberalisation of the banking sector. In 2014, the Central Bank of Myanmar (CBM) issued nine licences to foreign banks. This year, four more foreign banks have already been granted preliminary approval to operate in Myanmar.

Managing director of KPMG in Myanmar, Yasuhide Fujii, believes that further liberalisation in the industry is imminent as Myanmar’s economy is developing rapidly and needs a robust financial infrastructure to support this growth. He believes that Myanmar’s government and its central bank have taken a conscious decision to benefit from the participation of foreign banks in the development of the banking sector. “They went ahead with their plans despite some quarters of the local banking sector voicing their reservations – although the finely calibrated way in which the CBM went about opening up the sector to foreign participation has put the fears of the local industry to rest,” he says. He also adds that the primary objective of letting foreign banks operate in Myanmar is to facilitate foreign direct investment and make it easier for foreign companies to do business in Myanmar.

When compared with its ASEAN neighbours, Myanmar remains highly underbanked. According to Fujii, a vast majority of Myanmar’s citizens outside the urban areas of Yangon and Mandalay still don’t have access to basic banking services. “The domestic banking sector in Myanmar can clearly benefit from the international best practices, access to funds and technological expertise that foreign banks bring,” he says. Hence, he believes that there is a case to allow foreign banks to begin offering domestic retail services in Myanmar sooner rather than later.

But before this is done, Fujii cautions that the local banks need to be given time and support to move to a level where they can effectively hold their own against competition from foreign banks. “Some of this support may actually come in the form of training and technical tie-ups with foreign banks – and we know that a number of such tie-ups are already working successfully,” he adds. He is also of the opinion that the CBM needs to put in place a regulatory and institutional framework that will ensure that the nascent banking sector in the country does not experience any major turbulence when this liberalisation happens.

Fujii expects the CBM will have ambitions to open up the range of services that foreign banks are allowed to offer in Myanmar. “We can’t say when such services will be allowed, but we do believe that the CBM is committed to making Myanmar’s banking sector as robust and as competitive as any other in ASEAN – and allowing foreign banks in Myanmar to offer services that they are permitted to provide in other ASEAN countries will be a step towards that,” he adds.

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However, Hal Bosher – chief executive officer at Yoma Bank, one of the oldest private retail banks in Myanmar – doesn’t see this happening anytime soon. “The country already has a large number of very traditional retail banks with a large branch network. The competency could be better, but they have reach,” he reveals.

A challenging landscape
As with most emerging markets, the retail banking sector in Myanmar is not without its challenges. According to Bosher, modernisation is a challenge for the whole country – especially in terms of banking practices, corporate governance and risk management.

Yoma Bank – which received a $5 million convertible loan from the International Finance Corporation in 2014 as well as assistance to improve its risk management – is very focused on good corporate governance.

But issues pertaining to governance – especially in a nascent market such as Myanmar – needs to be helped along by having a coherent regulatory framework. “The CBM has been working hard on devising a comprehensive regulatory framework for the industry and has made significant progress in the last four years,” Fujii shares. But there is still much more to be done. He reveals that the CBM has a limited number of staff who have to juggle the dual responsibilities of coming up with new policies and regulation while overseeing the implementation of the existing ones.

But this challenge is not contained only within the CBM – the entire sector is facing capacity constraints for staff and there is need for more trained staff at all levels of the industry, according to Fujii. While one solution is to conduct in-house and external training, banks are choosing to bring in expatriate staff for key positions. “It will take time and a concerted effort by the CBM and industry organisations for the staff shortages to be bridged in the medium to long term,” he observes.

Banking on telecommunications
Very low banking penetration coupled with rapid improvement in telecommunications infrastructure have created a unique opportunity for Myanmar’s banking sector to leverage financial technology. “Myanmar banks have been upgrading their financial infrastructure and new third-party providers have entered the market to bridge the technology gap in this sector,” Fujii says. He believes that further upgrades in this area will be the fastest and most cost-effective way to get the basic banking services across to rural masses.

Even though telebanking and mobile banking have their challenges and risks, Fujii is of the opinion that they are the solution that the banking sector in Myanmar is looking for. “Serving the unbanked rural population in Myanmar requires a service designed for high-volume low-value transactions, whereas banks are typically designed for high-value low-volume transactions with a high fixed-cost structure for branch networks,” he explains.

Fujii believes that if mobile banking is to succeed in Myanmar, mere mobile penetration will not be enough – it would need to be supported by an enabling regulatory framework and implemented through a network of agents.

One example of a telco-bank collaboration is Yoma Bank’s partnership with Telenor, which is launching mobile money transfer service Wave Money. Telenor has a 51 percent stake in this new venture while 49 percent is held by Yoma bank. Bosher says: “We partnered with a telco to ensure that the competency and the quality of the disbursement is there.”

“It’s about providing consumers with easier and cheaper access to financial services while providing a platform for all banks and telcos to digitise cash,” Bosher says, adding that the digitisation of money is something that has yet to happen in Myanmar. However, he says that the biggest challenge in the digitisation of money is weaning consumers off cash.

From being a country that had little in the way of traditional banking services, Myanmar sure is leapfrogging its way towards modernity and Bosher thinks that this reflects the huge advantages of technology that is seen globally. “Myanmar is very late in terms of its opening up and its development – but there are some advantages in not having to go through those capital-intensive and infrastructure-intensive steps,” he says.

Opportunities abound
Fujii discloses that regulators and industry participants in Myanmar have unprecedented access to technical support and guidance from the International Monetary Fund, the World Bank and central banks of a number of friendly nations. “They can study various models of financial sector growth that countries in ASEAN and the world have adopted, then choose the one that suits their requirements the best,” he observes. This means they can avoid making policy mistakes that have plagued the banking sectors in some countries.

Apart from that, Fujii also believes that the industry can – through technical partnerships and training programmes – benefit from the rapid innovations that are taking place in the banking sector in developed countries such as Japan and Singapore.

Meanwhile, Bosher foresees that the wide use of technology will bring in a whole new raft of consumers who had not previously participated in the financial sector – those who are younger and more digitally savvy: “I think we will see a very different type of client for banks.” Adding that the consumer has not really been a target for banks in Myanmar – “simply because they have been so hard to reach” – he thinks the advent of technology will trigger efficiencies that will force banks to face them and provide products that they want. “I think that’s going to be a big transition – it’s pivoting the financial sector here from being focused on commercial banking to retail banking,” he concludes.