Domestic banks not ready for joint ventures

Domestic banks lack the capital to take part in international banking, despite receiving permission to do so last July from the Central Bank, sources say.

According to a draft law released in November, the Central Bank is likely to allow private banks to open representative offices overseas. But Co-operative Bank managing director U Pe Myint said private banks have yet to develop plans to do so.


At the same time, despite the recent passage of the foreign investment law, foreign banks are not going to be opening functioning branches in Myanmar any time soon, as legal and technical restrictions remain.

Central Bank deputy director general U Win Thaw said the bank would develop specific rules and regulations for the entry of foreign banks after setting general targets this month.

“Some foreign banks want to open branches here straight away, but our regulations say they must first pass through three steps (representative office, subsidiary and joint-venture). There are also said to be software problems,” he said.

U Win Thaw added that Myanmar’s 19 private banks are enough for the country’s banking sector, but they have too few branches.

Asia Green Development (AGD) Bank managing director U Ye Min Oo said domestic banks are too small to compete with international banks. A big Myanmar bank could have less capital and fewer branches than one of Thailand’s smallest banks, he said.

“Foreign banks intend to cooperate with Myanmar banks in joint ventures permitted by the Central Bank. But they’re waiting for the rules and regulations,” he said.

“When we think about joint-venture banking, we have to think who contributes how much in terms of share ratio, how to select the board of directors, the CEO or managing director, and which services we can offer. Many of those things are still at the discussion stage,” he said.

There are about 300 towns in Myanmar and the biggest Myanmar bank, Kanbawza, has fewer than 80 branches. Private banks still have a long way to develop in-country, let alone opening representative offices in other countries, U Ye Min Oo said.

“No-one will take a risk in overseas banking without profit,” he said.

Dr Sein Maung, chairman of First Private Bank, said a Chinese bank had recently approached him about possible cooperation.

The Chinese bank had about US$240 billion in capital, and his bank has about K30 billion (about $36 million). He said the Central Bank had to decide what the equity share ratio would be for each side.

“The foreign investment law does liberalise the contribution ratio for joint-venture projects, but we’re still awaiting the decision from the Central Bank on that,” he said.

He added that K30 billion is tiny compared to foreign banks’ capitalisation, and domestic banks would need more in order to work foreign banks.

There are 23 representative banks in Myanmar from 11 countries, including Japan, South Korea, India, China and Thailand.

source: The Myanmar Times
http://mmtimes.com/index.php/business/3510-domestic-banks-not-ready-for-joint-ventures.html