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Myanmar’s Banking Sector: Challenges and Progress

YANGON - Despite making significant progress in recent years, Myanmar’s banking sector faces several challenges. The country’s interest rate controls and strict lending requirements have limited the ability of banks to compete on rates, while a heavy reliance on cash transactions has hindered financial development.

Interest Rate Controls and Lending Requirements

According to figures from the Central Bank of Myanmar (CBM), consumer prices rose significantly in 2015 due to extreme flooding caused by Cyclone Komen. The CBM had previously mandated specific interest rates, but loosened them to a two percentage point band in 2011 and then adopted its current policy in 2012.

Banks in Myanmar are also restricted from expanding services and lending down-market, particularly to rural populations where operational costs are higher. Until 2013, banks were capped at an aggregate value of up to 80% of their deposit base, which led to a concentration of lending among larger corporations.

Lending Requirements

Lending requirements in Myanmar are also strict, with collateral being the main obstacle to credit creation. Land was previously the only acceptable form of collateral, but the CBM has expanded this to include gold, diamonds, machinery, and government bonds. However, many Myanmar citizens do not have access to bank accounts or other financial services.

Progress in Banking Sector

Despite these challenges, there are signs of progress in Myanmar’s banking sector:

  • The country is rapidly expanding its use of electronic payments, with the number of ATMs increasing from several hundred in 2013 to nearly 1,700 by early 2016.
  • The Myanmar Payment Union (MPU) has implemented a national payment switch and spearheaded the expanded use of debit and credit cards.

Challenges Remain

However, Myanmar still lags behind its regional peers on many important indicators:

  • The country has only about two ATMs per 100,000 people, compared to 32 in Laos or 114 in Thailand.
  • Many Myanmar citizens do not have access to bank accounts or other financial services, making it difficult for them to use debit and credit cards.

Addressing Challenges

The CBM is working to address these challenges by introducing new policies and regulations:

  • In 2016, the CBM brought real-time settlement to banks, allowing for faster and more efficient transactions.
  • The country has also joined the global SWIFT messaging system, which enables international financial transactions.

Conclusion

Overall, while Myanmar’s banking sector faces several challenges, there are signs of progress and a commitment from policymakers to address these issues. With continued efforts to develop its financial infrastructure, Myanmar is likely to make significant strides in improving access to banking services for its citizens.