During a PowerPoint presentation and a panel discussion, bankers and economists discussed the key challenges – human resources, technology and infrastructure, building trust, well-sequenced implementation of the new Financial Institutions Law, and the exchange rate.
According to San Thein, an expert on financial-sector development at GIZ, a German company that specialises in international development, Myanmar has the least developed financial sector of all the countries in Southeast Asia, and the sector cannot adequately fulfil its role as a financial intermediary.
“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,” he said.
San Thein said the state-owned banks, which currently account for about half of the assets in the sector, needed more reforms or liberalisation. However, given the low level of banking-sector development and the size of the potential market, growth potential continues to look promising.
Salai Om Ki, an expert on national financial-sector development at GIZ, said global views on the performance of Myanmar’s financial sector played a dominant role in attracting foreign direct investment.
He pointed out that the World Economic Forum’s Global Competitiveness Index (2015-2016) ranked Myanmar 131st out of 140 analysed countries, and in terms of ease of access to loans, Myanmar ranked at the bottom end.
Likewise, in the World Bank’s recent “Doing Business” report, Myanmar ranked 170th out of 190 economies, and 175th in terms of getting credit.
“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,” he said.
Om Ki said that Myanmar was very weak in credit-guarantee programmes, as there is no credit bureau or credit-rating agency. He also considers low insurance awareness, limited development of information-technology systems, and very limited access to basic financial services as major challenges to Myanmar’s financial sector.
However, he foresees more trade financing, more loans to the agricultural sector and small and medium-sized enterprises, further liberalisation of the insurance sector and the potential entry of foreign insurance companies in the next few years.
According to Soe Thein, a consultant for Asia Green Development Bank, independence of the Central Bank of Myanmar (CBM) is the most important factor in the nation’s financial-sector development.
“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,” he said.
He said that things could not be achieved overnight, as there was a lot of room for improvement. However, he welcomed competition in the banking industry.
“It is very important to ensure fair competition. But if it becomes excessive competition, they are unintentionally destroying themselves. Excessive competition is frequently seen among local banks,” he said.
“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.”
Thein Zaw, executive vice chairman of Shwe Bank, said safety measurements and strong institutions were needed for Myanmar’s development. He suggested changing the mindset of civil servants. He said it was the best time to change their mindsets, as the new democratic government was making efforts to move Myanmar forward.
Mya Than, ex-chairman of Myanmar Oriental Bank, questioned local banks’ readiness for regional integration.
“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,” he said.
The bankers suggested proper preparation for depreciation of the kyat against the US dollar, as poor and middle-class people would suffer the affects of a weaker currency.
Soe Thein said: “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.”
Mya Than said the black market was too strong to control in Myanmar. He believes maintaining market stability is more important than controlling the exchange rate. He urged the central bank to cooperate with relevant ministries such as Commerce, Planning and Finance to resolve inflationary pressures.
“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,” he said.