YANGON, Dec 5 (Reuters) - Private banks have welcomed a move by
Myanmar’s central bank to allow them more time to clear most of their
loan books, giving breathing space to lenders who had warned of a
cliff-edge scenario that could have destabilised the financial system.
Myanmar’s
central bank announced in late November that a maximum of three years -
instead of the original deadline of six months - would be given to
lenders to recover the mostly open-ended “overdraft loans” that make up
the bulk of their lending. The move ends a tussle over regulations
introduced in July to bring the country’s banks closer to international
standards.
The decision came days after Reuters reported the
authorities would back off from a demand that private banks clear most
of their loans by January and that it would allow overdraft loans to be
converted into three-year loans.
The central bank said the new rules allow banks to “collect their
credit facilities smoothly” and “increase repayment capacity of their
borrower”. Banks had complained they were given only six months to fix
years of junta-era mismanagement and to recover most of their loans amid
a sluggish economy.
“It’s good to move step-by-step towards
Myanmar’s banking reform,” said Than Lwin, former deputy central bank
governor and senior adviser at Myanmar’s largest lender Kanbawza Bank.
“This gives some breathing space for banks.”
Myanmar’s leader
Aung San Suu Kyi has made banking reform a priority for her
administration, which faces sky-high expectations after sweeping to
power in a 2015 election to end decades of isolation under military
rule.
About 70 percent of Myanmar’s more than $9 billion lending pool is in
the form of overdraft loans - typically made on preferential terms to
lure customers and rolled over indefinitely. To end such practices, the
authorities had previously asked banks to get all those loans repaid by
January.
The follow-up instruction from November gives lenders
more time to gradually reduce the proportion of overdraft loans on their
books. It allows banks to keep such debt at 50 percent of their loan
portfolio by July next year, and 20 percent by mid-2020.
But some
banks said the new deadline remained challenging and they were seeking
further discussions with the central bank over its impact on their
businesses.
“It’s still a bit difficult to fulfil, but we are all
trying to meet the deadline,” said Pyi Soe Htin, executive director of
international banking for Yangon-based Asia Green Development Bank.
Myanmar’s central bank did not immediately respond to requests for comment.
“A LONG WAY TO GO”
Central
bank officials had told Reuters they were concerned that pushing too
quickly on reform could trigger volatility in the fledgling financial
system. Myanmar’s banks are deeply entwined with one another and with a
small group of well-connected businessmen close to the former ruling
elite that dominate key sectors of the economy, from real estate to
aviation.
Myanmar’s central bank deputy governor Soe Thein had
said he feared the amount of bad debt on private lenders’ books was
greater than has so far been reported to the authorities.
The new
rules are an attempt to force lenders to deal with riskier loans in a
banking sector that has remained poorly regulated.
Kim
Chawsu, managing partner at Katalysts Investment Group and former chief
financial officer of the parent company of lender Kanbawza Group,
welcomed the compromise by the authorities, but said Myanmar still has
“a long way to go” to tackle its debt pile.
“Sooner or later you do have to do the surgery anyway. You are just postponing the inevitable,” she said.
Myanmar
banks have continued to lend largely on preferential terms to
well-connected customers despite widespread political and economic
reforms that began in 2011.
“We should speed up the reform
process,” said a financial professional who has worked as a consultant
to the central bank, who declined to be named due to the sensitivity of
the matter. “The central bank should not make more concessions after
this.”
(Reporting By Yimou Lee and Thu Thu Aung; Editing by Alex
Richardson)
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