Myanmar Banking Sector Faces Isolation as Coup and COVID-19 Restrictions Take Toll
A recent report by the World Bank highlights the significant challenges facing Myanmar’s financial sector in the wake of the 2021 military coup and the COVID-19 pandemic.
Financial Sector on the Brink of Isolation
The report, titled “Myanmar Financial Sector Reforms”, reveals that all gains made by the financial sector reforms since 2010 have been undone. The sector is now facing liquidity, asset quality, and solvency issues. The COVID-19 pandemic had already taken a toll on the sector, but the coup has further destabilized it.
Consequences of Financial Instability
- Foreign and domestic investors are withdrawing their funds from the country, leading to a significant drop in deposits.
- Long queues at ATM centers, withdrawal limits, and foreign remittance restrictions have caused panic among depositors.
World Bank Report Warns of Further Deterioration
The report warns that this trend could lead to further moves towards a cash- based economy. The Central Bank of Myanmar (CBM) has resorted to draconian measures to ration access to hard currency, including:
- Suspending the free spread range
- Adopting managed floating exchange rates
- Allowing the use of additional currencies as settlement currencies
CBM’s Measures Raise Concerns
In recent months, the CBM has issued several instructions aimed at controlling foreign currency outflows, including:
- Limiting card payments
- Requiring foreign investors to convert their foreign currency holdings into local currency within a day
These measures have raised concerns about their effectiveness and sustainability.
Pre-Existing Risks Exacerbated by Coup
The report highlights pre-existing risks and vulnerabilities in Myanmar’s financial sector that have been exacerbated by the coup. The World Bank warns that this could have important implications for the country’s financial stability, even as official data indicates that the system has remained stable or improved.
Uncertainty Remains
The situation is further complicated by contradictory orders from the junta regarding foreign currency ownership. However, in a recent move, the CBM has rescinded an exemption allowing companies owned by overseas entities to keep their foreign currency holdings. This move has put foreign investors and local bank holders under increased scrutiny.
Urgent Reforms Needed
The World Bank report calls for urgent reforms to address the sector’s vulnerabilities and promote financial stability. The situation remains uncertain, with depositors and investors holding their breath as the country navigates its way out of financial isolation.