Myanmar’s Banking Sector: Obstacles to Development
Despite significant progress in recent years, Myanmar’s banking sector continues to face numerous challenges that hinder its development. A new report from the Milken Institute highlights the obstacles that have prevented the country’s banks from fully exploiting their potential.
Rate Controls Strangle Competition
One of the key constraints is the fixed interest rate policy imposed by the Central Bank of Myanmar (CBM). The policy, which was tightened in 2015, limits the degree to which banks can compete on the basis of rates they offer. According to a report from the German governmental think-tank GIZ, banks mainly compete through service provision and physical presence in the market.
Collateral Requirements Hinder Credit Creation
Another major obstacle is the strict collateral requirements imposed by banks. Until recently, land was the only acceptable form of collateral, but the CBM has expanded this to include gold, diamonds, machinery, some agricultural crops, fixed deposit accounts, and government bonds. However, in practice, there is widespread confusion on this point, with banks often demanding an extraordinary amount of overcollateralization by international standards.
Limited Loan Availability
The report also highlights the limited availability of loans to individuals and small businesses. According to a study by the World Bank’s Global Findex, only 0.4 percent of Myanmar citizens over 15 years of age had used a bank account to receive wages and government transfers in 2015.
Progress in Electronic Payments
Despite these challenges, there have been significant advances in electronic payments in recent years. The number of ATMs has grown rapidly from several hundred in 2013 to near 1,700 by early 2016, while the number of point-of-sale (POS) terminals has quadrupled during the same period.
Myanmar Payment Union Leads the Way
The Myanmar Payment Union (MPU), a business association with 23 out of 28 Myanmar banks as members, has played a key role in driving these advances. The MPU has implemented a national payment switch to facilitate non-cash payments and transfers, and has spearheaded the expanded use of debit and credit cards.
Comparisons with ASEAN Peers
However, Myanmar still lags behind its regional peers on several important indicators. For example, it has only about two ATMs per 100,000 people, compared to 32 in Laos or 114 in Thailand.
Way Forward
To address these challenges and fully develop its banking sector, the report recommends a number of reforms, including:
- Establishment of a credit bureau
- Relaxation of collateral requirements
- Promotion of electronic payments
With continued progress, Myanmar’s banking sector has the potential to play a key role in driving economic growth and development in the country.