By YIMOU LEE & THU THU AUNG | REUTERS
YANGON — Private banks have welcomed a move by the Central Bank of Myanmar to allow them more time to clear most of their loan books, a concession that followed warnings of a scenario that could have destabilised the financial system.
The 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 most of their lending.
The move ends a tussle over regulations introduced in July to bring the country’s banks closer to international standards.
The central bank 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 U Than Lwin, a former deputy governor of the CBM and senior adviser at Myanmar’s largest lender Kanbawza Bank. “This gives some breathing space for banks.”
Myanmar has a lending pool of more than US$9 billion of which about 70 percent 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 have 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.
Some banks said the new deadline remained challenging and they were seeking further discussions with the central bank over its impact on their businesses.
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.
The new rules are an attempt to force lenders to deal with riskier loans in a banking sector that has remained poorly regulated.
Daw 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.