YANGON (Reuters) - Myanmar will allow some foreign banks to begin offering limited financial services next year, a senior central bank official said, as the Southeast Asian country slowly opens up its banking sector following a series of economic and political reforms.
Thirty-four international banks have representative offices in the country, but they have thus far been forbidden from opening branches or offering services other than advising clients. According to a decades-old plan, the government will eventually allow them to form joint ventures with local banks before allowing them to open independent branches.
The senior official said the central bank is now formulating a plan to speed up the process by letting a select number of foreign banks begin operating in 2014 in “certain areas of banking services”, which he did not define.
“Since things have changed rapidly with the passage of time, we can’t afford to stick to something laid down about 20 years ago if we really want to carry out meaningful reforms,” he said, requesting anonymity because he was not authorized to speak to media.
The official said authorities have yet to decide how they would chose among the foreign banks with representative offices, which include Standard Chartered STANB.UL, Bangkok Bank (BBL.BK), Siam Commercial Bank SCB.BK and Australia and New Zealand Banking Group (ANZ.AX).
Foreign involvement would help reform the antiquated banking system in Myanmar, Asia’s second-poorest country after Afghanistan, which has been looking to attract foreign investment since a quasi-civilian government took office in 2011 after half a century of military rule.
Foreign banks could also help jumpstart economic development by providing access to much-needed financing for corporate clients, according to Khwima Nthara, a senior country economist with the World Bank.
“I do not doubt the government appreciates the role that foreign banks can play in financing,” he said.
Nthara added that authorities are right to move slowly in opening up the banking sector.
Strictly limiting the role of foreign banks could help insulate the economy from any future financial crisis that could see them withdraw capital, and it would allow the domestic sector to develop without being swallowed up by the internationals, he said.
“The question is really how best to have them involved so you increase availability of credit, of financing, but also the local banks’ capacity is strengthened,” he said.
Zaw Lin Htut, deputy manager of Myanmar’s biggest private bank, Kanbawza Bank Ltd, said he had not yet heard of the plan to allow some foreign banks to begin operating next year, but he welcomed the idea.
“Foreign clients need funding and it’s not a small amount to invest in Myanmar,” he said. “As domestic banks, we cannot fund too many corporate customers.”
He added that domestic banks would benefit by learning about corporate investment from the international banks.
“Corporate clients need local banks as well,” said Zaw Lin Htut. “I‘m sure we can work together in the future.”
Myanmar’s banking sector was crippled by decades of mismanagement under military regimes and cut off from much of the global economy due to western sanctions. The European Union, Australia and other countries have lifted sanctions in response to widespread political and economic reforms.
The United States has eased sanctions and the Treasury Department issued a general license to Myanma Economic Bank, Myanma Investment and Commercial Bank, Asia Green Development Bank and Ayeyarwady Bank.
A general license eases restrictions and lets the banks deal with U.S. citizens and companies, but leaves sanctions laws on the books, giving Washington leverage should Myanmar start to backslide on reforms.
The World Bank is advising the government on financial reform and country manager Kanthan Shankar told Reuters in October that a draft of the new banking law would be completed by the end of this month.
Editing by Chris Gallagher