The development arrives after the Central Bank of Myanmar (CBM) said it would not be reducing the high lending rates charged by local banks that deter many from taking loans.

The CBM last month said it would not be adjusting the maximum lending rate of 13 percent over the short term.

Now, the business community wants the CBM to avail similar benefits enjoyed by local banks to the foreign banks, believing this will give them higher chances of obtaining loans at more competitive interest rates.

Even though the CBM has issued licenses to 13 foreign banks, they are nevertheless restricted from providing a slew of banking services to the domestic market.

This includes retail banking services such as deposits, loans, mobile transfers and card services.

Currently, foreign banks are only allowed to disburse loans via the local banks, so lending rates remained capped between the Central Bank rate of 10pc and the maximum lending rate.

“If foreign banks are allowed to operate independently like the local banks, businesses may be able to get access to cheaper loans,” said U Kyaw Khaing, executive director Asia Myanmar Consortium Development, a property developer.

The way he tells it, local businesses are struggling to achieve a 10pc profit margin after paying taxes, wages and other expenses and lending rates of 13pc places unnecessary pressure on the bottom line.

“If the interest rates offered by the local banks cannot be adjusted lower than inflation to encourage deposits, the CBM should consider allowing foreign banks to offer more competitive lending rates,” U Kyaw Khaing added.

“No difference”

Experts say levelling the playing field between local and foreign banks may not result in cheaper loans for SMEs though.

“Foreign banks don’t want to provide small-scale services like deposits or transfers. It is not convenient or viable for them. Meanwhile, they only want to extend loans to large firms which are financially very strong and have the appetite for large acquisitions,” said U Ye Min Oo, a member of the government’s Economic Committee.

“So even if foreign banks are allowed to participate in retail banking, it won’t be easy for small enterprises to get cheaper loans. Unless you are a big firm looking to invest or a large public company, there may be no difference.”

Some economists reckon a more level playing field may do more harm for the economy than good, as it will generate more competition for the local banks than they are currently prepared to take on.

“Allowing the foreign banks to provide retail banking services will definitely place pressure on the local banks at a time when the capital market is not mature enough to handle more competition,” said economist Dr Aung Ko Ko.

The other concern is the impact more competition will have on the rest of the economy.

“The local banks have extensive branches across the country.

“It is also common for the local banks to outsource certain services to third parties. As such, a loss of business can potentially have a huge impact on the economy,” Dr Aung Ko Ko said.

CBM assistance

Still, the CBM has taken steps allowing foreign banks to play a bigger role in Myanmar.

In December, foreign banks were officially allowed to provide export financing services to local exporters. Since then, all thirteen non-Myanmar banks have submitted applications to do so,  said U Soe Thein, CBM’s vice governor.

“The Central Bank has also allowed foreign banks to provide trade financing across every trading sector and not only for the export sector,” U Soe Thein said.

“The impact of this is not yet obvious because the banks are still working out what kind of services they want to offer.”

In the meantime, the local banks must work on extending their service offerings to become more competitive. “Banks need to offer more services, such as mobile money transfers. When there are more institutions involved in providing a variety of services, the banking sector will be better, “ U Ye Min Oo said.

As the banking sector develops, smaller businesses and small and medium-sized enterprises can expect to struggle with high interest rates for a while more.

Source: https://www.mmtimes.com/news/start-ups-smes-call-greater-access-loans-foreign-banks.html