Burmese Bank Signs Trade Financing Agreement With ADB
By Moe Myint 3 August 2016
RANGOON – The United Amara Bank (UAB) signed off on a trade finance agreement with the Asian Development Bank (ADB) on Wednesday at Rangoon’s Sedona Hotel that allows UAB a letter of credit (LC) insuring them for US$4 million for each international transaction the bank makes.
The LC is a bank guarantee service for those involved in import-export business ventures. When a cash payment must be made, a third party (the ADB) makes a guarantee on behalf of the service provider (the UAB). An LC process can adopt varying time frames, with some banks specifying that one transaction is allowed every two to three months, according to Kyawt Kay Khaing, UAB’s Chief Business Officer.
“ADB will allow [UAB to make transactions of] US$4 million each time. If the specified rate is up, the traders need to wait until next time,” she said.
The project aims to boost Burma’s trade volume. Currently, the LC approach is not practically popular among small and medium businesses in Burma, who continue to perform transactions using the more traditional Telegraphic Transfer (TT) method. This involves customers transferring the money after receiving goods from a foreign company. In addition to being risky, Burmese businesspeople widely criticize the TT system as delaying trade flow.
ADB’s country director for Burma, Winfried Wicklein, stressed that he believes the impact of the trade finance program will bring benefits not only for domestic businesses in Burma as they connect with international commercial communities, but also new opportunities for local banks to extend their business with international banks.
UAB owner Nay Aung is the son of Aung Thaung, who is now deceased but was once a notorious hardliner in Burma’s former military regime. Many famous conglomerates and figures with ties to military generals have been faced with US economic sanctions, including former general Aung Thaung. Yet Nay Aung’s UAB has never been featured on US sanction lists.
A board member of UAB, Than Win Swe, confirmed that UAB is not on the US sanction list.
“If UAB was on the sanction list, how could ADB collaborate with UAB?” he said.
The UAB’s Chief Executive Officer, Thein Lwin, stated that their customers could now potentially connect with 200 ADB partner banks in the US, Europe and other Asian countries; ADB, he said, will issue a Foreign Letter of Credit on behalf of UAB if the foreign banks require an additional guarantee or confirmation.
Both UAB and ADB’s senior officials pointed out that under this deal, Burmese businesspeople will be backed by a AAA rating, ADB’s highest credibility score.
The UAB will officially launch applications on August 15 for those clients who want to access the bank’s credit scheme. Interested applicants need to provide trading licenses issued by the Ministry of Commerce. Customers are not required to pay any service charges for utilizing the LC, however, they must guarantee fees required by the bank for financial transactions, according to Kyawt Kay Khaing.
Kyawt Kay Khaing declined to provide specific information about guaranteed fee rates because they are designated by ADB, and the fees depend on both the foreign country and the banks involved. For example, the rates for transactions in Asia and in Europe are different.
The agreement is a part of ADB’s Trade Finance Program (TFP), which offers both guarantees and loans to banks to facilitate international trade. At Wednesday’s signing ceremony, Rangoon divisional chief minister Phyo Min Thein and the Central Bank’s deputy governor Set Aung presented honors to both the ADB and the UAB.