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Myanmar: Foreign banks allowed to set foreign currency loan interest rate

The Central Bank of Myanmar (CBM) said foreign banks are free to set their own interest rate as long as those loans are in foreign currencies.

Foreign banks with branches in the country are now allowed to do wholesale banking services and other financial services, according to the latest Directive issued by the CBM last month.

CBM has allowed foreign bank branches to provide loans and other banking services for companies and organisations but there are still restrictions on acceptance of immovable properties such as land and building as collateral and acceptance of fixed deposit saving and paying interest in kyat.

In addition to the approval, CBM also announced that it will allow foreign bank branches to expand in 2019.

“Local banks have been allowed to do so for 25 years. They still have capital requirement. We can’t close local banks – even they have yet to develop. The main thing is that we need to prioritise the growth of the economy for the entire country,” CBM’s deputy governor U Soe Thein said.

Deputy governor U Bo Bo Nge stressed that CBM would want foreign banks to support the country’s financial industry and economic development.

Foreign banks can now lend in both foreign currency and Kyats and they have received permission to provide every trade-related banking services.

“The interest rate for foreign currency loan is not stated, but it will be according to the market price. However, for the Kyats loan, the interest rate must not be over 13pc,” said U Soe Thein.

This will spell positive changes for Myanmar, which is in need of capital investments to develop its infrastructure and economy.

‘I welcome the approval of the Central Bank. However, we don’t have credit bureau, legal infrastructure or technological infrastructure so far.’ – U Ngwe Tun, Genius Coffee

“The Kyats loans must be according to the local rules. As foreign banks can get back the Kyats only from the local banks, there might be no big difference in interest rate for Kyats,” U Soe Thein said.

“The key issue is that foreign banks need to give out loans with foreign currency and if they are offered according to the international market rate, many local businesses can secure loans. Although the CBM has permitted, it is uncertain if they will give out foreign currency loans or not and so, we need to observe,” said CB Bank’s senior consultant U Pe Myint commented. He said local banks need not to be worried about the competition as retail banking has not been liberalised.

The local banking community said it would take some time for businesses in the country to familiarise with loan applications.

U George Soe Win, private advisor on banking and investment issues, said foreign banks would need six months to get ready the loan services while local businesses would need to prepare the documents for applications. It will also take longer time to secure a large loan.

He speculated that the likely outcome is that more short-term financial assistance will mean more access for trade financing. However, there are many steps local industries need to work out for the loan sector.

“The inventories demanded by the foreign banks are not like local CPAs. They must be International Financial Reporting Standards IFRS. Then, they monitor the income tax amount,” U George Soe Win.

At the same time, it will not be easy for local businesses to apply for loans due to the prevalent business practice.

“I welcome the approval of the Central Bank. However, we don’t have credit bureau, legal infrastructure or technological infrastructure so far. If a loan is applied, foreign banks will ask collateral, tax-paying record and loan facts. Most businesses in Myanmar are weak in it and I think businesses will get benefits only after taking some times to prepare for it,” U Ngwe Tun, owner of Genius Coffee told The Myanmar Times.

In getting loans with Letter of Credit (L/C) in the commercial banking services of the foreign banks, it will take more time than local ones, businesses said. This presented an advantage for domestic banks.

Source: https://www.mmtimes.com/news/foreign-banks-allowed-set-foreign-currency-loan-interest-rate.html