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> New Operating Licences for Foreign Banks in Myanmar

It is a relatively well-known fact that Myanmar is a cash-based society that had, as recently as 2003, experienced a major banking crisis, resulting in the closure of three major banks in the country and a significant reduction in the people’s faith in the formal banking system. As a result, Myanmar’s banking sector remains largely underdeveloped, owing to its exclusion from the global banking system, and is still struggling to recover from the aftermath of the 2003 crisis. Domestic banks currently operate under tight domestic and international restrictions, which in turn, limits the sources of financing for the private sector.

The government has initiated an overhaul of the financial services sector and banking system that has seen significant milestone changes, such as the shift from a multiple exchange rate to a managed floating exchange rate system. In July 2013, a new Central Bank Law came into force, giving the Central Bank of Myanmar (“CBM”) greater autonomy from the Ministry of Finance, and plainly defining its role of sustaining monetary and fiscal stability.

The Financial Institutions Law of 1990, currently under review, allows foreign banks to establish representative offices only and prohibits them from providing commercial banking services within the country. In the most recent development in May 2014, the Myanmar government officially confirmed that it would be granting up to as many as 10 “limited” operating licences to foreign banks by the third quarter of 2014, which will be subject to the condition that lending to local companies will require the foreign banks to cooperate with local institutions.

This highly anticipated move has resulted in an influx of foreign banks opening up Myanmar representative offices over the past two years and has been widely viewed as a step forward in bolstering the country’s banking system. Local banks can now work with foreign banks, leveraging on their experience to modernise their operations and boost domestic growth through providing much-needed trade and project financing services to businesses in the country.

Written by Krishna Ramachandra and Benjamin Kheng.

This article is prepared and published for informational purposes only and should not be construed as legal advice. The views expressed in this article are those of the authors and do not necessarily reflect the views of the authors' law firm or its individual partners.

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