Parliament passes the Banks and Financial Institutions Law of Myanmar: the new law stipulates minimum capital requirement of 20 billion Kyat and lenders have to keep 5% of customer deposits in cash with the Central Bank

After years of back and forth, the Banks and Financial Institutions Law of Myanmar has been passed by parliament and is now awaiting the president’s signature, with banks to face more stringent rules on raising paid-up capital and on reserve requirements.

Lenders will have to keep 5 percent of customer deposits as cash with the Central Bank, despite petitioning the regulator to enforce a lower reserve requirement.

Banks were previously required to hold 10pc, but 75pc of that could be made up of Treasury bonds.

The new law also stipulates a minimum capital requirement of K20 billion.

Some in the financial sector are concerned that small banks will struggle to meet the reserve requirement.

However, while the Central Bank did not agree to bankers’ requests for a softer policy, the regulator will not implement penalties as strictly as it had previously indicated, said U Mya Than, chair of Myanmar Oriental Bank.

“It seems the Central Bank want banks to meet the standard gradually,” he said.

U SoeThein, a banker and former deputy director general of the Ministry of Finance, also felt the reserve requirement could be a burden on banks during difficult times. But now that the rule has become law, there is nothing to be gained in banks complaining, he added.

The new law updates Myanmar’s banking laws in line with the Basel Committee’s requirement on banks following the 2008 financial crisis, bank sources said. The final version of the new law has only minor changes from a draft already published on the Central Bank’s website, they added.

The Myanmar translation, however, seemed more complicated and less smooth, one source said.

U Mya Than said the law provided specific rules on risk management requirements, Basel III compliance, anti-money laundering issues and prudential requirements.

Banks in Myanmar have been operating under the Financial Institutions of Myanmar Law, which was enacted in 1990 by the State Law and Order Restoration Council. This only provided very general rules for local financial institutions.

The new rules lay out a wide range of guidelines for commercial, state-owned, private and foreign banks. There are also rules for non-bank financial institutions, and rules governing development banks, although such entities do not yet exist in Myanmar.

Different types of banks will generally have to obey the same principles, bank sources said.

The new law leaves unchanged a stipulation that financial institutions shall not lend more than 20pc of their capital, including reserves, to a single individual, enterprise, or economic group. But this rule will not apply to state-owned banks, which indicates the Central Bank has deliberately adjusted policy, U SoeThein said.

“The first part [of the stipulation] means we want bank loans to be diversified, but this was controversial for state banks,” he said. State-owned banks like Myanma Economic Bank have to provide massive loans to Myanma Agricultural Development Bank for farming projects every year.

“The old law only applied to private banks, but state-banks had to follow the same principle,” he said. He had suggested adding a sentence excusing state-banks from this requirement at a meeting between the Central Bank and a bankers association held last year, he said.

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