Thursday, 8 May 2014

Foreigners firms prepare for Myanmar

Foreign lenders are expected to receive requests for proposals on new banking licences from the Central Bank of Myanmar as early as this month, the South-East Asian nation’s latest step towards a more open and competitve financial market.

New banking licenses, expected as early as this year, will allow foreign firms to expand beyond the representative offices many now operate. Myanmar has been opening up its markets to foreign companies since the US and European Union started lifting economic sanctions in the past few years.

The country granted telecom licences to Norway’s Telenor and Qatar’s Ooredoo earlier this year. Several foreign brands, such as Coca-Cola, General Electric, Unilever and Visa, have been introduced, or reintroduced, of late to consumers.

At the same time, the Tokyo Stock Exchange and Daiwa Securities Group are advising the central bank on the establishment of the Yangon Stock Exchange, expected to open next year.

The lenders likely to get the first licences are those with representative offices in the country. Among them are DBS, United Overseas Bank, OCBC, CIMBand Standard Chartered. However, other firms – not only SE Asia’s regional players – are expected to seek to licences, as well.

“With companies like Coke and Unilever doing business here, it’s very encouraging,” said a source at a foreign bank with a Myanmar rep office. “We are waiting just for RFPs.”

Happy returns

Coke, like other foreign firms, is returning to the country and plans to invest significantly as Myanmar’s economy is expected, with the help of FDI, to grow 7.8% in each of the next five years, according to the IMF.

Coke opened a new bottling plant near Yangon in the middle of last year, the first time in more than 60 years that the brand is produced in Myanmar. Coke said it would invest US$200m over five years, something permitted under the new foreign investment law, signed in November 2012.

At the outset, new bank licensees will likely be limited in the types of business they can pursue, owing to regulations, as well as the fact that the banking and capital markets in Myanmar are so underdeveloped.

Nonetheless, lenders see promise in the country, not least because it is located between India and China, the two most populous countries. Myanmar posted a GDP of US$56.4bn last year, according to the IMF. The figure is set to double in the next six years or so.

Foreign firms, such as DBS, are naturally interested in a growing SE Asian market.

“As Myanmar moves to develop its financial sector, DBS welcomes the opening up of Myanmar to foreign banks, and we would be keen to tap on banking opportunities there,” a DBS spokesperson said.

Another Singapore lender has similar plans for the country. “OCBC sees potential in Myanmar,” said a spokeswoman at the bank. “As and when the regulations allow for banks to have more significant investments in the country, we will be keen to explore deepening our presence there.”

The roughly 35 foreign banks with rep offices in Myanmar do not conduct business locally. Instead, office heads engage in fact finding and consulting with authorities.

“A lot of what we do now is education,” the source at the rep office said. “We help to provide knowledge to the central bank. If we want to be in this market, why not also try to help shape it.”

IMF help

The central bank has been willing to seek outside advice from the rep offices, as well as global institutions like the IMF.

A March report from the IMF said that authorities in the country “are moving rapidly to issue licences to foreign banks”. The introduction of licensed foreign firms would “accelerate integration with international financial markets”, the IMF said.

However, the authors of the report said that the central bank should limit the number of new firms from three to five at first, because supervising more lenders than that would pose an unnecessary initial burden.

“Once supervisory capacity has improved, further licences can be awarded,” it said.

It is unclear how many licences the central bank will ultimately grant. Yet, despite all the uncertainties related to Myanmar’s nascent markets, foreign banks have kept on opening rep offices. Several Indian and Korean banks, including Shinhan Bank, Industrial Bank of Korea and Kookmin Bank, landed in the country last year.

Such an on-the-ground presence will likely give a firm some advantage in working on Myanmar-related international financing opportunities, even if their local operations are nominal.

source: IFR Asia
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