In light of one of the outstanding monetary policies of the government to liberalise the financial sectors of the country this year, we look at the regulatory body of the commercial banking business. The Central Bank of Myanmar (CBM) will begin with the big step by having the policy to grant a banking business licence to foreign bank to carry out the wholesale banking in the third or fourth quarter of 2014, in addition to the present policy in allowing a foreign bank to set up only a representative office. Once granted with the banking business licence, foreign bank will play important roles in driving the increase of foreign investors into the country as the licensed foreign banks may grant loans to the foreign investors for their investment in Myanmar, according to the CBM’s policy at this stage. As the regulator, the CBM shall also play important roles in monitoring and supervising the banking industry.
Board of CBM
CBM is currently subject to the Central Bank of Myanmar Law (Pyidaungsu Hlattaw Law No. 16/2013). Under the Law, CBM shall be managed by board of directors which shall be consisted of nine members – the Central Bank Governor, three Deputy Governors and five professional experts with well reversed experiences in economics, finance and banking law, accounting and auditing works. The term of the governor is five years while of the members including the deputy governor is for four years. The governor and the members shall not be allowed to serve more than two terms.
Important Functions, Duties and Powers of CBM
The following are the samples of the functions, duties and powers of CBM as prescribed in the law: formulating the implementing the monetary policy; deciding foreign exchange policies; supervision and controlling of financial institution; controlling and managing; providing short term loan to banks; supervision and controlling the monetary market and foreign currency market; issuing licence to the bank and financial institutions; and performing necessary means to acquire the stable and viable foreign transaction.
Apart from the above samples, CBM shall ensure the monetary stability of the country and one of the major roles of CBM in ensuring the monetary stability is the responsibility in licensing, revoking, inspecting, supervising and regulating bank and financial institution.
The other major powers are the trading of the security exchange certificates in the financial market, imposing reduced rate and the least reserve money requirements, as well as the announcing interest rates and loan. In addition, with the power of the inspection on the financial institutions, CBM’s assigned staff shall be empowered to visit the places of business of the banks and financial institutions to inspect the accounts, ledgers, supporting document and records. CBM shall also be empowered to give an order to the bank and financial institution to send the required data to CBM for the inspection. To ensure the stability on monetary system, CBVM shall be empowered to establish the loan information centre for loan data information to evaluating the loan credibility.
Functions of CBM in foreign exchange management
Two of the major duties of CBM in this aspect are to implement the foreign exchange policy and to fix the foreign exchange rate, upon the advice of the government. In performing the functions in foreign exchange management, CBM will play similar roles of the central banks of the other countries. Such roles are for example buying, holding, selling and dealing in gold, foreign currencies, treasury bills and other securities exchange certificates, or borrowing in any foreign currency certificates.
Other functions and duties of CBM
The law also has the provisions as to the functions and duties of CBM in the controlling payment and accounting clearing system, acting as banker to extend short term loan, as well as in performing the government’s monetary matters such as accepting the deposits of and make payments on behalf of the government.
The law contains of 121 sections empowering CBM to monitor and supervise the banks and financial institutions and it is important to note that CBM is empowered to issue necessary rules, regulations, bye-laws, orders, directives and procedures under the law. Therefore the bankers and those who are in the banking sectors must ensure that they are updated with the most recent regulatory requirements of CBM since the law also imposes the severe penalty for the offences under this law.
To give our readers the full picture of the regulatory body in the banking business in Myanmar, I will explore the provisions of another legislation which is the Myanmar Financial Institution Law in my next article.
Chulapong Yukate is the Chairman of Myanmar Advisory Limited and can be contacted at email@example.com.