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Review Panel to Manage Foreign Banking Licences

Consulting firm Roland Berger will monitor the review panel overseeing the licence application process for foreign banks seeking to operate financial services in Myanmar.

Roland Berger is a Munich-based global strategy consultant, which gives performance advice to public institutions and leading corporations around the world.

Up to 40 international banks are said to be bidding for 5-10 highly coveted foreign banking licences, with many financial firms hoping to begin offering services in Myanmar by September.

However, Myanmar’s Central Bank Deputy Governor Set Aung said the government won’t authorise more than 10 banks to run services in the country, he was reported as saying on News.com.au.

The International Monetary Fund and World Bank have been working with Myanmar’s government to increase the participation of foreign banks in the country since last year.

Currently foreign banks are only allowed to operate representative offices in the country.

Myanmar’s strong growth prospects mean international banks remain interested in the country despite its financial restrictions on their operations.

When President U Thein Sein came to power in 2011, the new quasi-civilian government introduced sweeping economic and political reforms.

Myanmar’s nationwide changes have encouraged countries including the European Union, Australia, the United States and Canada to remove trade sanctions against the South East Asian state.

The country’s foreign direct investment has risen dramatically in the past year to over $871 million (K871 billion) in February.

However, Myanmar’s banks and politicians are wary the increased capital resources and technology of foreign banks could place the country’s own financial institutions at a disadvantage.

The International Monetary Fund’s (IMF) Matt Davies said an increase in foreign banks into Myanmar could place added pressure on the country’s developing economy.

“An expected entry of foreign banks to the already rapidly growing financial sector will place further demands on macroeconomic policy and stretch (Myanmar’s) scarce supervision capacity,” Matt Davies said.

Last month, the IMF released a report on Myanmar’s economic forecast for this fiscal year ending March 2015.

The International Organization forecast Myanmar should expect the country’s economic growth to reach a rate of 8.5 percent over the 2014-15 fiscal year.

Davies said the International Monetary Fund will work closely with Myanmar authorities to ensure any influx in foreign banks doesn’t strain the country’s local banking sector.

“Implementing modernised prudential regulations as soon as possible that apply to all banks will lay the foundation for the development of a sound financial system,” he said.

The World Bank has called for foreign banks to meet a minimum of $75 million (K 75 billion) in capital investment before entering the country, according to reports.

Authorities are expected to only allow foreign banks entry into Myanmar if they agree to work with the country’s local banking sector.

Foreign companies with bank licences will be required to give monetary support to domestic banks, in hopes of improving the country’s underdeveloped financial system, the Herbert Smith Freehills Myanmar group said.

Myanmar’s remains one of the poorest economies in the world with only 10 percent of citizens and 40 percent of local businesses owning a bank account.

International banks entering the country could also be forced to manage their accounts in US dollars due to a trending decline in the value of Myanmar’s local currency, Kyat.

The current exchange rate of Kyat and the US dollar is approximately $1 to K975.

Davies said a gradual administration of foreign bank licences throughout the country will ensure capital inflow increase don’t heighten fiscal risks pressuring the country.

“In order to allow supervision capacity to develop, and to minimise risk, the issuance of new domestic licenses should be carefully controlled.”

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