Myanmar’s central bank has backed off from a demand that the country’s private banks clear most of their loan books by January, averting a cliff-edge scenario that some bankers warned could have destabilised the financial system.
Myanmar’s central bank deputy governor, Soe Thein, said that 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 the bulk of their lending.
The compromise ends a lengthy tussle over regulations introduced in July to bring the country’s banks closer to international standards. Reforming the banking sector is a key goal in leader Aung San Suu Kyi’s plan to complete Myanmar’s democratic transition after decades of isolation under military rule.
“They need reasonable time for the transitional period...Sometimes international practice can’t work domestically. We are very aware of and careful about the situation,” said Soe Thein.
“The economy is not in a strong position, so we want the financial sector to be in a stable position. We have to establish an understanding between the banks and the central bank.”
The new regulations also include stricter guidelines for bad loans — also known as “non-performing loans” (NPLs) — and an increase in the amount of capital banks are required to set aside to cover losses.
The central bank says it fears that the amount of bad debt on private lenders’ books is greater than has so far been declared to the authorities. But officials are also concerned that pushing too quickly on reform could trigger volatility in the financial system.
“It’s not easy, we agree, but we have to try,” said Soe Thein, declining to provide an estimate of the scale of the problem because he said it was “dangerous” to try to estimate how much money the banks had lent in loans that are unlikely to be repaid.
Officials and bankers say around 70 per cent of Myanmar’s more than $9 billion lending pool is in the form of so-called overdraft or evergreen loans — typically made on preferential terms to lure customers and rolled-over indefinitely.
The central bank moved in July to end such practices with the new regulations drafted with the help of the International Monetary Fund. The curbs would force the banks to end indefinite roll-overs of the loans, asking them to get the loans repaid for a period of two full weeks on an annual basis.
Banks complained they were being given only six months to fix years of junta-era mismanagement and to recover most of their loans amid a sluggish economy. — Reuters