Financial Crime World

Myanmar Banking Sector Still Faces Challenges

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Despite significant progress in recent years, Myanmar’s banking sector still faces numerous challenges that hinder its development. In this article, we will explore the major obstacles facing the sector and highlight some of the positive developments.

Overcollateralization: A Major Obstacle

One of the major challenges faced by the banking sector is overcollateralization. International standards are often exceeded by up to 200 percent of loan value, leading to a situation where banks frequently limit loan terms to just one year. This makes it difficult for businesses to finance long-term investments and expansion plans.

  • Around 80 percent of corporate borrowers would prefer access to loans with terms between one and five years.
  • The current loan term restrictions hinder businesses from making long-term investments and expanding their operations.

Reliance on Cash Transactions: A Slowing Down Factor

Another major challenge faced by the sector is the country’s heavy reliance on cash transactions. This slows down financial transactions, increases costs, and creates opportunities for corruption.

  • Salary payments, utility bills, and government transfers were all made in cash until recently.
  • The lack of a digital payment infrastructure has hindered the growth of electronic payments.

Progress Made: Automated Clearance System and Financial Institutions Law

However, progress has been made in recent years. The government has implemented an automated clearance system for the Central Bank of Myanmar (CBM), known as CBM-Net, which facilitates large transactions and provides a real-time gross settlement (RTGS) system.

  • The Financial Institutions Law was passed, empowering the CBM to issue regulations for electronic payments and instructing banks on installing payment infrastructure.
  • The number of ATMs has grown rapidly, from several hundred in 2013 to over 1,700 by early 2016.
  • Point-of-sale (POS) terminals have quadrupled during the same period.

Myanmar Payment Union: A Key Player

The Myanmar Payment Union (MPU), a business association with 23 out of 28 Myanmar banks as members, has played a key role in implementing a national payment switch and expanding the use of debit and credit cards.

  • The MPU has worked to increase the adoption of electronic payments and promote financial inclusion.
  • The organization has implemented measures to improve the security and efficiency of transactions.

Challenges Remaining

Despite these advances, Myanmar still lags behind its regional peers on several important indicators, such as the number of ATMs per capita. The country also lacks a credit bureau, which is an essential tool for financial institutions to assess creditworthiness.

  • The lack of a credit bureau hinders the ability of financial institutions to make informed lending decisions.
  • The country’s banking sector still faces significant challenges in terms of access to finance and financial inclusion.

Conclusion

While significant progress has been made in recent years, Myanmar’s banking sector still faces numerous challenges that need to be addressed to support economic growth and development. Addressing these challenges will require a combination of government support, regulatory reforms, and investment in infrastructure.