Banking industry Executives have warned of possible economic disruption unless a deadline for complying with the new lending regulations is eased

Banking industry executives have warned of the possibility of severe disruption to the economy unless a deadline for complying with new lending regulations is eased, the Nikkei Asian Review reported last week.

The regulations, some of which replace rules made nearly 30 years ago, were published by the Central Bank of Myanmar in July after being drafted with assistance from the International Monetary Fund.

Industry executives say “unrealistic deadlines” for compliance could put some of the country’s 28 banks in jeopardy, the NAR reported on September 22.

The regulations, most of which took effect on July 7, include stricter treatment of non-performing loans, an increase in minimum capital requirements and higher risk weightings for fixed assets and some kinds of loans.

The main concern of bankers is a regulation covering widely-used overdraft lending. It will require all banks, from January 2018, to clear overdraft facilities for at least two full weeks of each year, forcing borrowers to repay the overdraft loans. Overdrafts not cleared annually will be treated as non-performing loans, for which the Central Bank is also enforcing stricter capital requirements.

Overdrafts are popular because they circumvent a Central Bank restriction that limits traditional loans to one year. Because there is no repayment deadline, overdrafts allow customers to borrow indefinitely.

NAR said senior bankers and analysts estimate that the misuse of overdraft lending may account for between 75 percent and 80 percent of the banking sector’s total lending portfolio. Some of the biggest loans have been on banks’ books since before 2011, bankers said.

"All these overdrafts are just loans forever," Mr Melvyn Pun, chief executive of Yoma Strategic Holdings, which owns Yoma Bank, told NAR.

None of the bankers interviewed by NAR opposed the content of the regulations, but all said that seeking compliance on all the new rules by January was unrealistic.

"There's no doubt [the new prudential regulations] are a step in the right direction," Mr Azeem Azimuddin, chief financial officer of AYA Bank, told the Euromoney conference in Nay Pyi Taw earlier this month. "The issue is the timing and the timeline for compliance,” he said.

State Counsellor Daw Aung San Suu Kyi was aware of the industry’s concerns, the report said.

She told the NAR on September 20 that the regulations were essential but the timeline for regulatory compliance could be “negotiable” if monetary authorities agreed.

"We are thinking about it because many people have voiced their concerns with regard to the timeframe, and I'm sure the Central Bank is very well aware of that,” she said.

(Frontier Myanmar: https://frontiermyanmar.net/en/bankers-warn-of-economic-disruption-unless-rule-deadline-eased )

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