Joint-ventures law has banks worried about stability

Domestic banks are concerned they may be put out of business if a proposed banking law, which would allow foreign entities to inject large sums of capital into the market through joint ventures, is passed by parliament.

Central Bank Governor U Kyaw Kyaw Maung last month announced that the bank is drafting a Financial Institution Law, which would allow foreign-owned banks to buy stakes in domestic banks. If the bill passes, bankers expect the incoming investment could unsettle the sector and leave some of the country’s 19 privately owned banks out in the cold.

U Thein Tun, chairman of Foundation Bank and the newly elected president of the Myanmar Banks Association (MBA), said working through the law was the top priority among the country’s banks, which must decide whether to begin scouting for potential investors or risk falling behind.

“This is a subject we have to consider very seriously – whether we are going to make a joint-venture or go and operate independently,” he said.

“If the government allows outside banks to have commercial operations and they introduce new products, then we will not be able to compete given the scale of their investment.”

With foreign investment an inevitable part of a growing economy, he said the association would attempt to level the playing field by approaching the government to request subsidies for banks that choose to remain

independent.

“We need a lot of [financial] support from the government. If we cannot get support from the government, the number of banks will

become smaller,” he said. U Thura,

assistant general manager at Myanma Economic Bank (MEB), said it is going to be difficult for domestic banks to prepare for the passage of the law as it is not yet clear what capacity at which foreign banks can operate in Myanmar. “The important thing is that we have to certain of the substance of the law and have time to be able to defend our livelihood before they come in,” he said.

Although it is too early to tell how the finance sector will shape up, some commercial banks such as MEB and Co-operative Bank, have already begun vetting foreign suitors for possible

partnerships.

“We will cooperate [with foreign entities] when we get a chance,” said Rona Rakhit, head of business development at Co-operative Bank, adding his bank has held discussions with banks from Japan and the United Kingdom.

“We will see in due time. Let’s see what happens when some foreign banks come in and we will react … based on that,” he said.

A total of 24 foreign banks from China, India, Japan, South Korea and elsewhere in the region hold representative offices in Myanmar, according to the Central Bank’s website. International banks that hold representative offices in Myanmar include United Bank of India, Maruhan Japan Bank Plc, AB Bank, Standard Chartered, CIMB Bank Berhad and First Commercial Bank.

Despite the rush of foreign investment across other sectors, some banks said they would prefer to wait for the government to pass laws that allow for 100 percent foreign ownership in

Myanmar.

“We have not decided as of now because we want everything to be owned by our company and don’t want to have to join with local banks,” Kim Bun Socheat, managing director and chief executive officer of Cambodian-owned Acleda MFI Myanmar Co Ltd, told The Myanmar Times.

“Equity is still low compared to foreign countries so if we wanted to join [a domestic bank] we would need to offer a lot of support financially as well as technically in order to raise the capacity,” he said.

Central Bank sources said they have yet to decide on a timeline that would allow foreign banks to operate autonomously in Myanmar.

Even though some banks will feel the sting of modernisation, Mr Socheat said the changes would ultimately benefit customers as new capital would mean expanding outreach with new branches and introducing international-standard services.

A draft of the law is expected to be distributed in parliament sometime next week.

source: The Myanmar Times
http://www.mmtimes.com/index.php/business/8440-joint-ventures-law-has-banks-worried-about-stability.html