Opinion Divided on Merit of Further Rate Cuts for Burma’s Banks

By Kyaw Hsu Mon 6 September 2013

Opinions are mixed within Burma’s financial industry when the question of whether or not to lower interest and loan rates arises, with some touting a drop as pro-business, while others warn that lowered earnings on savings deposits could prompt a run on the nation’s banks.

Changes to bank rates could have a detrimental impact on the country’s economy, the managing director of the Asia Green Development Bank told The Irrawaddy this week. The comments by the AGDB banker, Ye Min Oo, come as lawmakers reportedly consider tweaking the nation’s monetary policy.

“I heard, in one of the parliamentary sessions, that they were discussing reducing current bank interest [rates]. It would have a big impact among the business sector here, because there are many consequences to that,” Ye Min Oo said.

In 2011, interest earned on savings accounts was reduced to 8 percent and loans were calculated at a rate of 13 percent, a difference of 5 percentage points.

Bank rates have been adjusted three times in the last three years: In 2010, an interest cap of 12 percent was set, and 17 percent was the maximum rate at which loans could be taken out. That same year, the Central Bank, then housed under the Ministry of Finance, again adjusted rates, reducing them to 10 percent and 15 percent, respectively.

“Some parliamentarians suggested to reduce the interest rate from 8 to 4 percent and loans from 13 to 8 or 9 percent. … If the interest rate is reduced, customers will definitely take back their money. The result will be a hit to businesses,” Ye Min Oo said, explaining that if individuals’ money was not being kept in banks, businesses would be unable to then take loans out using customers’ deposits. “We have to be cautious on that point.”

He added that many businesspeople have been persistently lobbying the government to further reduce loans rates over the past year, and have the backing of some of Parliament’s more business-minded lawmakers.

“But the country’s banking situation depends on the inflation rate too,” Ye Min Oo said, pointing out a discrepancy in that metric between the government and the World Bank. “The World Bank announced it [inflation] at 6 percent, but the government announced it at only 2.5 percent, so some parliamentarians are still talking based on the government figure.

“So my view is that third-party, freelance parties should calculate the country’s inflation rate to get the real information,” he added.

Than Lwin, the vice chairman of Kanbawza Bank, said he had not heard about an impending bank rate change, but noted that any adjustment would be decided by the Central Bank, which this year became independent from the Ministry of Finance. Than Lwin acknowledged that Burma’s business community would favor a lowering of loan rates, which would effectively reduce the cost of money for the nation’s borrowers.

“Do you think a bank interest rate drop is not good? Businessmen will be happy with the rates … [and] customers will still save because they have no opportunities to make other business here,” he contended.

Burmese banks’ interest rates are higher than lenders in fellow Asean countries, meaning loans taken out from a Singaporean or Malaysian bank are less costly and more attractive to businesses seeking financing.

“If the bank loan [interest rates] are lower than in the past, businesspeople can do more business and money will flow into the market, which is good,” said Win Nyunt Lwin, editor in chief of the Farmer journal.

“So Burma’s bank rate standard should be equal with other Asean countries,” he added.

There are currently 19 privately owned banks in Burma.