Central Bank enacts long-awaited finance regulations

By SEAN GLEESON | FRONTIER

YANGON — Eighteen months after the passage of Myanmar’s landmark Financial Institutions Law, the Central Bank has issued a long-awaited set of regulations to govern the conduct of the sluggish domestic banking sector.

Published Friday, the by-laws mandate that all banks maintain a liquidity ratio above 20 percent and adhere to a new loan classification schedule.

New rules on large exposure loans will cap lending to a single party at 20 percent of shareholder equity. Banks will also be required to keep unsecured large exposure loan portfolios at a cumulative value below total shareholder equity.

State-owned banks, which comprise around two-thirds of total market share, will be allowed to ignore the large exposure rules at the direction of government policy.

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All banks will have six months to comply with the new regulations and will be required to file monthly performance reports with the Central Bank from early 2018.

The Financial Institutions Law, which meets international standards enacted by the Basel Committee following the 2008 global financial crisis, was drafted by the previous government with the assistance of the World Bank.

The law requires banks to maintain five percent of all deposits as cash reserve and imposes a K20 billion capital requirement on licensees.

Domestic banks were previously governed by general provisions enacted by the former military junta in 1990.

A dramatic bank run in 2003 led to the collapse of Asia Wealth Bank, at the time the country’s largest financial institution, and residual distrust of lenders has kept deposit rates low in the years since.

In July 2016, World Bank country manager Mr Abdoulaye Seck told Frontier that the new law amounted to a dramatic modernisation of Myanmar’s banking sector.

He added that the law’s final draft fell short of some international standards relating to insolvency and governance of non-bank financial institutions.

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