Taifreedom

The soon-to-be opened new private banks in Burma will not be allowed to lend money to business enterprises belonging to the bank owners, according to the regulations of the Central Bank of Myanmar (CBM).

The CBM regulations also require each bank to posses a capital investment of 10 billion kyat (US $10,204,000).

The military regime recently granted private banking permits to four leading entrepreneurs who have close business ties with the generals. The four—Tay Za (Htoo Co., Ltd.), Zaw Zaw (Max Myanmar Co., Ltd.), Nay Aung (IGE Co., Ltd.) and Chit Khaing (Eden Group Co., Ltd.)—are on the US sanctions list.

A banking expert in Rangoon pointed out that one of the causes of the 2003 banking crisis in Burma was the investment of bank owners in their businesses by using savings from their banks.

“If you look at the 2003 bank crisis you will find that banks received savings and invested them in their businesses.” he said. “So, when people withdrew their savings the banks didn't have money to disburse.

“We can't say if new banks will face similar problems. In a way, banks need investment to be able to pay interest on savings but small businesses don't need big loans like huge ones. Those who own the new private banks are those who run giant businesses so it is impossible to know whether these banks will follow the CBM regulations and not lend money to their businesses.”

In 2003, Burma's Asia Wealth and Mayflower banks were accused by the US government of involvement in black money laundering. The regime shut the banks down, saying they exercised poor management.

Economists, however, said one of the main reasons for the closure of the two banks was that Aik Htun, owner of Asia Wealth bank, and Kyaw Win, owner of Mayflower bank, misused savings as loans to their own businesses.

Only businessmen close to the regime were reportedly allowed  to own banks when private banking was readmitted in Burma in the 1990s.

Sources said businessmen who will run the new private banks have been looking for banking experts to run their banks properly since they don't have much experience.

“According to the CBM regulations, those who want to establish a bank must have employees who are expert in banking,” said a professor from the Institute of Economics in Rangoon. “What this means is that we can't open a bank even if we have money and we have to know about banking well in order to run our banks efficiently.”

The government should allow private banks to run without interference, however, the professor said. “Even if there are experts, a bank will not be successful if it can't run independently. The banking system will face difficulties and be in disarray if authorities keep changing regulations the way they want.”

The  Burmese news journal Weekly Eleven, has reported that preparations are being made for the new private banks to offer foreign banking services.

“We are preparing for international money transactions and foreign currency transfer services by negotiating with a bank in Thailand,” said a former bank officer who will work with Tay Za's private bank, named Asia Green. He did not mention the name of the Thai bank.

Burmese economist Khin Maung Nyo warned there would be difficulties in managing foreign transactions.

“The problem in working with foreign banks is that foreign currency keeps changing its value and it is very difficult to handle. Even in Thailand, not every bank has a foreign currency exchange service. International money transactions are still impossible for Burma.”

 Khin Maung Nyo said the new banks should make sure they were adequately capitalised.

“Banks shouldn't expand and open many branches just to receive savings. They shouldn't forget that they have to have enough capital whenever they open a new branch. Their capital should be commensurate with the money deposited in their banks,” he said. The Irrawaddy