Banking Troubles Ahead?

As recent as two and half years ago, Myanmar’s banking sector was in dire straits with the country’s banks going through bank runs and depositors unable to take out their own savings. The economy was about to implode and the government was running out of foreign currencies fast.
Fast forward two years from then, no bank has collapsed so far. The economy is recovering, notwithstanding at a snail’s pace. Terrorists are on retreat. We should acknowledge the competency of the CBM and Ministry of Finance, in taking control of the banking crisis and turning the financial services sector and economy around.
So is the worst over for the local banks? No, not for every bank.
At the macro level, structural issues still exist. First, there are just too many banks in an economy 1/6 the size of Singapore, which has just three domestic banks. The whole Myanmar economy can be serviced by 3-4 large banks. We do not need small little banks, each servicing a targeted segment of the economy. Most of these banks cannot even afford a basic core banking system.
Secondly, there is the issue of bad loans. The banking sector is so embedded with bad loans that the government even envisaged setting up one asset management entity to take over these bad loans from the banks, probably at a discount and enhancing the sector liquidity at the same time. Even the Chairwoman of MBA (Myanmar Bankers Association), asked Senior General Min Aung Hlaing to get the government to ask the customers to pay back the loans, on her bank’s behalf, during a recent UMFCCI meeting with some heads of government. What an irony, hearing from someone who herself, refused to appear on national TV to address the banking sector issues, yet asked privately for her own bank benefits, at a meeting held to benefit the country moving forward.
Thirdly, there is the issue of building confidence back. Savers and depositors have been stung by the banks’ refusal to let them take out their own money, while these bank managers engage in skullduggery to take additional percentages as cuts/bribes from customers for allowing them to take their money out, before many others. Fool me once, shame on you; Fool me twice, shame on me!
Fourth, quite a number of banks are still restricting customers’ withdrawals of most kinds. Some only allow accrued interest to be withdrawn. Some keep on renewing fixed deposits without the customer’s consent. Some are limiting withdrawals to a maximum of two million Kyats per week. All these banks are facing some form of liquidity crisis. Imagine an elderly depositor with 200 million Kyats in deposit. It would take him 100 weeks (~2 years), to withdraw all his savings, assuming he does not miss a single week. These banks need to be investigated and be forced to merge with larger stronger banks. The status quo simply should not be allowed to go on.
At the individual bank levels, most of them have bad loan issues. Some of them charge customers 3-15 per cent penalty fees for late or non-payment of loans, something unheard of at the international level, thereby compounding the NPLs. Some have potential fraud cases stemming from JAICA loans.
At the government level, there are still unpaid covid loans. Out of 200 billion Kyats of Covid loans issued, more than 166 billion Kyats are still left to be repaid. Some are trying hard to settle at least the interest component and what little they can afford for the principal. Some have run away or become uncontactable of some sort. The NNCP terrorists at the same time are encouraging borrowers not to repay these loans at all.
The government is grappling with issues ranging from security, development, EAOs, elections, etc., that focus on the banking issues may take a backseat. In a country short on competent and qualified civil servants, and long on people just wanting to hang onto a position of power, the output and results may not materialize very soon! The government at this moment may not have the capacity to tackle all four or five issues listed above at the same time.
Adding fuel to the fire, there was a closure of bank accounts held by Myanmar citizens or those doing business in Myanmar by Singapore banks, especially UOB. Myanmar National Airlines, one long-time client of the bank, has been treated quite unfairly, getting its corporate accounts closed down all of a sudden (probably at the request of its government and/or the US). One Singapore businessman who has long been doing business in Myanmar for more than 20 years, also has his UOB account closed off. Some Myanmar nationals having savings or current accounts with UOB are experiencing unjust and discriminatory treatment, getting their accounts closed without cause. Knowing that UOB holds a foreign bank license in Myanmar, it would not be equitable for the bank to be able to take unilateral actions, without the Myanmar government taking any countermeasures to reciprocate that.