Mitsuhiro Kimura, General Manager, Bank of Tokyo-Mitsubishi UFJ

The role of foreign banks in local economies

What sectors of the Myanmar economy are Japanese investors most interested in?

At the moment, Japanese investors are running businesses to serve domestic demand. We noticed that our customers are mostly now in the sectors of construction related to the Thilawa Special Economic Zone; the food and beverage industry that produces products at international standards; services that cover a wide range of areas from logistics to market research; agriculture machinery that will greatly support the Myanmar economy later on; and equipment for the communication sector that is expected to expand rapidly to catch up to local subscriber demands.

Some of the companies would like to do more business in Myanmar. However, due to the restriction of import-export licences normally being granted only to local companies, foreign companies struggle to expand their operations. If the regulations were relaxed, we might be able to see foreign companies operating more actively.

In terms of exports, Japanese companies would like to develop their export business in Myanmar, but there are several challenges to launch and operate their factories in the country. Any such factory would require significant support and materials from overseas. Currently, Myanmar logistics, including trade, have not been fully integrated with ASEAN and cannot accommodate the sophisticated requirements from Japanese companies.

Also, Myanmar still needs to develop in many infrastructural areas including electricity, roads, railways, ports, telecommunications and public transport. This will then encourage more foreign companies to invest and operate in Myanmar.

How can foreign banks assist with the economic expansion of Myanmar?

Some major opportunities include the flow of funds for lending, trade finance and cross-border transactions, and IT. One of our missions is to be the settlement bank for the flow of funds. Now that the US economic sanctions on Myanmar have been lifted, we look forward to operating smoothly to meet all stakeholder expectations for international fund transfers.

Foreign banks have a good understanding of international transactions and should provide skills and knowledge transfers to local banks in order to bring trade financing programmes in Myanmar up to international standards. If the Central Bank of Myanmar allows foreign banks to provide services to local entities via collaboration with local banks, then financing products would progress rapidly. Additionally, if the government allows foreign entities to have import-export licences, then more sophisticated trade finance products will be needed, which foreign banks can provide.

Lastly, Myanmar can also benefit from the IT platforms of foreign banks. Local banks can learn how to set up similar platforms, which will help them increase efficiency, accuracy and speed of service.

What steps need to be taken to assist the development of the money market and inter-bank lending environment?

Deregulation of the interest rate and the creation of a proper benchmark interest rate are necessary to advance the money market and inter-bank lending environment. At the moment, the lending rate is 13% with savings at 8%. The central bank regulates the interest band.

From a base rate, there must be the ability to adjust the inter-bank interest rate to reflect the credit profile of each borrower. Each bank, whether local or international, has a different risk profile. Banks with higher risk profiles may need to borrow at a higher cost. A proper benchmark rate needs to be logically developed and accepted for common use. This rate should then be actively used as the base rate for all banks.

How can foreign banks help to increase the capacity of local financial institutions?

Foreign banks can share knowledge with local banks. This knowledge could include lending policies, credit risk management, core banking systems and general concepts for banking management. Foreign banks should also share their experience on how to execute credit facilities. For example, lending policies need to be tailored to the needs of the firm, such as the lending for the construction of a new factory. Generally, a company will need a long-term loan to support this type of investment. The bank should therefore allow and provide the appropriate loan facility, including other related banking services.

Lending to businesses is a kind of risk management. Banks should monitor all of their lending closely and acquire a clear picture of their lending portfolios. The current practices of foreign banks, which local banks can take a close look at, can normally safeguard them from customers with poor credit and non-performing loans.

In terms of core banking systems and general concepts of banking management, foreign banks normally apply a good use of technology and systems to achieve high levels of efficiency, accuracy and speed to serve customers. Such systems can provide support and, at the same time, ensure that banking operations run smoothly.