By Eric C. Rose, Dr. Andrew Lian -
Myanmar’s banking sector, long one of the weakest links in the
former pariah state, is expected to have one of the highest
growth rates in Asia after it allows foreign banks to begin
operations in early 2014. The country is experiencing explosive
growth (6.9 percent in the medium term, and rising, according to
the World Bank) compared to its neighbors (5.2 percent, and
falling), with rising household incomes, and foreign direct
investment growth of 50 percent year-over-year. Moreover,
Myanmar reports a substantial rise in volume and price of
exports, both in commodities and manufactured goods such as gas,
rice, garments, etc.
In marked contrast, Myanmar’s internal banking services have had
an extremely low penetration in this country of over 60 million.
This means there is tremendous growth potential that is just
beginning to be realized. According to the World Bank, domestic
lending has again risen in excess of 50 percent in the past
year, down slightly from over 60 percent the year before. The
current government has undertaken a number of reforms designed
to unify exchange rates and stabilize the currency. The World
Bank has stated that the setting up of a Kyat managed float
exchange rate system in 2012, the creation of a relatively
independent Central Bank, as well as “licensing of new banks,
expansion of branch networks, the broadening of eligible
collateral to include key agricultural export goods, and
doubling of the loan ceiling to farmers,” are likely to have a
pronounced impact on the Myanmar population’s access to capital
and banking services.
A year ago, Myanmar did not have one ATM, and no point-of-sales
accepted credit or debit cards. Today, over 2,500 credit and
debit-card terminals have been installed, as well as over 500
ATMs, some of which accept foreign-issued MasterCard or VISA
cards. JCB, the Japanese credit card, has started to be accepted
at over 2,000 terminals of the Myanmar Payment Union, which is
the Myanmar national payment clearinghouse established by the
Myanmar Central Bank and 18 banks. Credit and debit cards have
started to be routinely issued, yet fewer than 10 percent of
Myanmar’s people have a bank account and less than half of those
actively use consumer banking services.
Furthermore, although Myanmar has four state-owned banks and
nineteen privately-held banks, no foreign banks have been
allowed to operate in the country except to open representative
offices. Some 34 foreign banks have taken advantage of this
exception, although none from the US. The Myanmar Central Bank
is now working on a plan to license, in 2014, a select number of
foreign banks to engage in limited operations in the country.
The draft of the new banking law is expected to be released
during the first quarter of 2014.
The U.S. sanctions against Myanmar are administered by the U.S.
Treasury Department’s Office of Foreign Assets Control (OFAC).
On July 11, 2012, OFAC issued Burma General License 16 (GL16),
which specifically permitted the exportation and re-exportation
of financial services to Burma, and Burma General License 17,
which permitted investment in Burma. OFAC followed GL 16 with GL
19, issued on Feb. 2, 2013, which also permitted financial
transactions with four Myanmar banks currently listed on the
Specially Designated Nationals list (two state-owned banks, and
two private banks). In other words, to quote OFAC, “U.S.
financial institutions may enter into direct correspondent
relationships with any non-blocked Burmese bank, and, as a
result of GL 19, also with the following four blocked Burmese
banks: Asia Green Development Bank, Ayeyarwady Bank, Myanma
Economic Bank, and Myanma Investment and Commercial Bank.”
Despite this regulatory openness, it appears that many U.S.
banks’ respective compliance departments have not yet read, or
understood, the OFAC rules and interpretative guidance. The
U.S.A. Patriot Act Section 311 (anti-money laundering section)
no longer applies to correspondence accounts’ transactions with
Myanmar non SDN-listed banks, as well as with the four banks
listed in GL19, provided that the underlying transactions are in
compliance with the Burmese sanctions regulations.
As a result, U.S. investors in Myanmar are well advised to
check, before they make any efforts to invest in Myanmar,
whether their current bank will support transactions with this
country. Our firsthand experience is that some large banks,
which routinely handle foreign transactions, can block or
substantially delay sending even routine capital contributions
to Myanmar, which is particularly incomprehensible when the
proposed transaction is between an American parent and its
wholly-owned subsidiary registered in Myanmar. These types of
unwarranted denials or delays of bonafide transactions occur
unannounced, without an explanation, and can have the effect of
discouraging U.S. companies and their controlled subsidiaries
from investing in Myanmar. Surely this is not what the U.S.
regulators had in mind when they provided for specific banking
The U.S. Treasury Department, and in particular the U.S.
Comptroller of the Currency, which, among its mandates, ensures
fair and equal access to financial services to all Americans,
needs to address this rather urgent issue head-on. The current
position of the Department appears to be that the marketplace
will take care of itself. In the long run, this is a correct
proposition. In the short run, though, Myanmar, in its new
incarnation and with a more flexible regulatory framework,
cannot continue to be treated as a rogue state. In fact, the
Treasury Department should clarify and expand its policies,
providing that U.S. banks may undertake transactions with
Myanmar under the same terms and conditions as those with
Myanmar is changing for the better, at a fast clip, and the U.S.
banks need to recognize these positive changes. The U.S.
Treasury Department needs to actively continue assisting U.S.
businesses be competitive in a marketplace which has virtually
unlimited potential at this time.
is the Lead Director of Herzfeld Rubin Meyer and Rose Law Firm
Limited, Yangon, Myanmar. He can be contacted at firstname.lastname@example.org
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