Lenders Urge Central Bank to Be More Flexible on Regulations

By Kyaw Hsu Mon 20 November 2015

RANGOON — Bankers are urging the Central Bank of Myanmar to reconsider a recent regulation that might leave many of Burma’s commercial lenders struggling in the market.

On Nov. 16, private lenders, officials from the Central Bank and President’s Office Minister Soe Thane met to discuss the state of Burma’s banking industry and its future when a new government is formed next year. In particular, attention was paid to one of the primary difficulties confronting commercial banks: a new reserve requirement ratio, or the percentage of deposits that a bank must keep on hand, that will come into effect soon.

The new regulation, decided upon in July and intended as a means of back-up funding, will require all banks to store 5 percent of their total deposits at the Central Bank in cash, whereas currently deposits can take the form of bonds or cash.

“Five percent is actually not too much, but the problem is that we’re not able to provide that amount in cash,” Pe Myint, managing director of the Cooperative Bank, told The Irrawaddy. “We’ve proposed to reduce this amount to 2 or 3 percent.”

Presently, 10 out of Burma’s 20 private banks are able to meet the 5 percent requirement, while the Central Bank’s decision is forcing the rest to send the amount in a more piecemeal fashion.

Than Lwin, a senior banking consultant for Kanbawza Bank, said he understands the reasoning behind the new regulation, but that the Central Bank should also take into consideration what is realistic for local banks, rather than leave them struggling.

“As the country continues to develop, the Central Bank must bear in mind that the market will also change, meaning that it [the Central Bank] must constantly be flexible with its regulations,” he said.

The Asia Green Development Bank is one such bank that sees no alternative than to gradually send money to the Central Bank so that it does not harm its standing in the market. Soe Thein, its executive director, is calling for a bit more flexibility in a society that is still predominantly cash-based.

“We [bankers] accept the 5 percent regulation. What we want is just more time to be able to give this cash to the Central Bank,” he said.

Though the local banking industry today is better than it was even five years ago, many believe that the Central Bank, which became an independent body after Burma’s quasi-civilian government came to power in 2011, has not been doing enough to drive further improvement in the financial sector. For instance, it has been roundly criticized for its lack of transparency with regard to how much money it has in its reserves.

Looking ahead to the next government, Than Lwin said: “The Central Bank must be far more aware of ground-level situations in the market.”