Late last year, the Central Bank of Myanmar announced that they will allow some foreign banks to begin offering limited financial services in 2014. Thirty four international banks have opened representative offices in Burma after gaining Central Bank approval.
The conditions under which they will be allowed to begin offering banking services remain unclear, however, and among local banks there is growing concern over the entry of many new foreign banks. Burma’s financial sector remains underdeveloped and closed off from foreign investment during decades of economic stagnation and international trade sanctions, aimed at the former military regime.
More than 20 local banks recently raised their concerns with the Central Bank. The Irrawaddy spoke with Htoo Group’s Asian Green Development Bank Managing Director Ye Min Oo about the Central Bank’s plans to let foreign banks enter the market.
Question: Which foreign banks are planning to come to Burma?
Answer: There are three Japanese banks, three Thai, three Singaporean and three Malaysian banks. Vietnamese, Chinese, European and US banks have already opened a representative office here. All sorts of international banks are looking to invest here, so we will have to face this big market [competition].
Now we only have 25 private local banks and four government banks. If they allow in 10 new foreign banks, it still won’t cover the Burmese population as only less than 10 percent of the people are using bank services. Even though foreign banks will open their branches in Yangon, Mandalay, Naypyidaw and Muse, they won’t open branches in other small cities. But our main income comes from big cities. So we will definitely lose market share in such cities.
Q: How will foreign banks entry affect Burma’s financial sector?
A: Most international banks have been allowed to operate many banking services freely. But here [in Burma], a lot of banking services are not yet allowed [by the government]. So we have questions about whether Burmese banks will not be allowed to carry out some services, while foreign banks will gain permission to do so in accordance with international banking rules. …
Now local banks are still not allowed to do internet banking for example because there are no rules for this yet. But foreign banks will bring such services here, so how will [the Central Bank] manage them?
A second issue that we’re worried about is the human resources problem. For almost 20 years, Burma has been facing the ‘brain drain’ problem. Many [skilled and educated] young Burmese have been going abroad for 20 years. The small pool of qualified people working in the banking sector is relied upon by local banks.
When foreign banks come here, they will definitely recruit local labor and they will need at least 60 employees for one bank, so if the government allows 10 foreign banks, they will hire 600 local employees. They will attract all employees to their industry by paying higher salaries. And even at the same salaries, the brands are not the same and employees will choose where they want to work. We are worried that all our talented employees will move to foreign banks when they come here. It will have impacts for us. That’s why we’re asking the Central Bank to inform us at least six months prior. Because within those six months we need to train new employees and try to keep recent employees in order not to have a human resources problem.
Q: What would happen if foreign banks were allowed to enter local market within one or two months, for example?
A: The quality of some services in local banks will definitely decline. Customers will see foreign bank services are better because our best employees are working there. Our local market name will be damaged and [consumer] trust will end. Then how can we keep going?
Q: The Central Bank still hasn’t informed you about how they will regulate foreign banks?
A: That’s right, they just only said no to worry and that they will only allow foreign banks to carry out services in US dollars [and not kyat, the local currency]. Either way, even if they don’t allow domestic kyat services, the human resources problem will emerge soon.
Now I heard that foreign banks are lobbying [for a regulation] that they will be allowed to do only services for foreign companies not local companies. But most Burmese companies have foreign branches overseas. So we will lose our foreign customers.
Q: What will be the best solutions for both sides?
A: We want the Central Bank to learn from old mistakes made in other countries before they make decisions. The best solution is that the Central Bank informs us [about regulations for foreign banks] six months in advance at least. And the Central Bank should be transparent. If they still can’t find ways to manage foreign banks they should take more time.
We want the same treatment. If they allow foreign banks to do mobile banking or internet banking or issue credit cards, we want the same opportunities. We don’t ask the Central Bank not to issue licenses for foreign banks, but we want same treatment, same regulations.