Overview of Financial Sector Reform in Myanmar with reference to. Banking and Insurance Sector

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1 Overview of Financial Sector Reform in Myanmar with reference to Banking and Insurance Sector Dr. Sandar Oo, Managing Director Myanma Insurance 7 June, 2017

2 Economic Development and Financial Sector Reforms The government of Myanmar is making the earnest efforts for achieving the inclusive and sustainable economic growth The financial and banking sector reform is the crucial role of the economic development of Myanmar Recent reforms in Financial sector are beginning to take off 2

3 Current Status of Myanmar Financial Sector Myanmar Financial Sector is still in the early stage of development Less than 30 percent of the population uses formal financial services Banking sector dominates non-bank financial sector 3

4 Myanmar Financial Structure Banks and Non-bank Financial Institutions Banks comprised of; Central Bank of Myanmar (4) State-owned Banks (24) Domestic Private Banks, (13) Foreign Bank Branches (47) Foreign Bank Representative Offices, (2) Foreign Finance Company Representative Offices Non-bank Financial Institutions (1) State-owned Insurance Enterprise, (11) Privateowned Insurance companies and (25) Insurance Representative Offices (16) Finance Companies (1) Myanmar Securities Exchange Co. Ltd (170) Microfinance Institutions 4

5 Size of Myanmar Financial Sector in terms of Assets in 2014 (MMK Billion) 5

6 Domestic Credit to the Private Sector (% of GDP) 6

7 Financial Intermediation in Myanmar (% of GDP) 7

8 Supervisory Framework Ministry of Planning and Finance (MOPF) Central Bank of Myanmar (CBM) Microfinance Supervisory Committee Insurance Business Regulatory Board Securities and Exchange Commission Banking Finance Company Mobile Payment Business Money Changer Microfinance Insurance Securities and Capital Markets

9 Direct State Role Bank Myanma Agricultural Development Bank (MADB) Myanma Economic Bank (MEB) Myanma Foreign Trade Bank (MFTB) Myanma Investment and Commercial Bank (MICB) Branches Supervisor None Central Bank Central Bank Central Bank Owner Ministry of Planning and Finance Ministry of Planning and Finance Ministry of Planning and Finance Ministry of Planning and Finance Legal Framework Own Act Financial Institutions Law Financial Institutions Law Financial Institutions Law 9

10 The Role of Ministry of Planning and Finance (MOPF) and Central Bank of Myanmar (CBM) Fiscal Policy is conducted by Ministry of Planning and Finance - Taxation - Government Expenditure Monetary Policy is adopted by Central Bank of Myanmar - Money Supply - Inflation 10

11 Banking Sector 11

12 Central Bank Autonomy Central Bank of Myanmar Law was enacted in July 2013 The objectives of Central Bank of Myanmar - to promote monetary stability - to enhance financial system stability - to develop efficient payments and settlement system - to support the general economic policy of the Government 12

13 Liberalization of Foreign Exchange Operation Foreign Exchange Management Law was passed in August 2012 and Regulation was issued in 2014, a managed floating exchange rate was adopted Elimination of multiple official rates was initiated and number of exchange restrictions lifted Initiated the daily foreign exchange (FX) auction since April 2, 2012 The interbank foreign exchange market has been implemented since August 5,

14 Liberalization of Foreign Exchange Operation Remove all restrictions on current account transactions without any restrictions starting from November 8, private banks, 3 state-owned banks and 274 non-bank companies are Licensed to carry out money changing business 14

15 New Flexibility for Bank Operations Deposit and lending rate were more flexible within a fixed loan-deposit rate corridor Banks are allowed to expand more branch networks Restriction on eligible collateral was ease and broaden the collateral New products such as hire purchase and ATM cards, debit & credit card, mobile banking, internet-banking and e-banking were further allowed 15

16 Expansion of Banking Infrastructure ATMs have recently been allowed to operate - As of Mar 31, 2017, more than 2396 ATMs and 4323 POS in place Myanmar Payment Union (MPU) was established on 15 Sep, 2011 and till now 660,000 MPU cards are already issued New ICT system (CBM-Net) for Central Banking has been implemented 16

17 Expansion of Banking Infrastructure Visa and Master card international network were already established Permitted China Union Pay (CUP) card since February 23, 2013 MoU with Japan Credit Bureau (JCB) to use JCB card and acquiring since December 27,

18 Liberalization of Banking Sector 13 foreign banks have started operations in Myanmar The entry of foreign banks will almost triple the capital size of the banking system Operations are initially be limited to wholesale banking, permitted to serve only foreign corporations and domestic banks Take deposits and extend loans in both foreign currency and in kyats 18

19 Monetary Policy Instruments Direct Monetary Policy Instruments: Interest Rate Policy Discount Rate 10%, Minimum Deposit rate 8% and Maximum Lending Rate 13% Reserve Requirements 5 % of total deposit Open Market Operation Deposit/Credit Auction Discount window facilities Sale of Government securities Fx Auction

20 Move Forward Introduce indirect monetary instruments such as Repo operations, the outright sales/purchase of Government bills, short-term borrowing or issuing central bank bill The permitted scope of operations of foreign banks branches may be expanded conducting business with domestic corporations Formation of credit bureau for information sharing is an agenda 20

21 Challenges Ahead Money market and capital market are initial stage No central land registry for the mortgage market Interest spread remains a major challenge The capacity of banks should be improved Need to improve regulatory and supervisory framework The presence of strong interbank market is necessary Payment and settlement system should be continuously updated Inadequate financial literacy and education of general public 21

22 Insurance Sector 22

23 Overview of Myanmar Insurance Industry Myanmar Insurance Industry is in its early stage of development in terms of insurance penetration ratio and insurance density General insurance premium in 2016 is 44 million USD and life insurance premium is 10.4 million USD Until 2012 state-owned Myanma Insurance Enterprise is the only player in the market but starting from 2013, 11 private local insurance companies have been granted licenses 24 foreign representative offices from 14 different countries 23

24 Overview of Myanmar Insurance Industry 3 Japanese companies have been permitted in the Thilawa Special Economic Zone (SEZ) 47 categories of insurance products have been provided There is an Insurance Business Regulatory Board Myanmar Insurance Law (1993) empowers Myanma Insurance engages in all insurance business activities Insurance Business Law which was enacted in 1996 and subsequently the rule for that law was also issued in 1997 Myanmar Insurance Associations (MIA) will be established soon 24

25 Myanmar s Objectives to Liberalize Insurance Sector To phase in the liberalization of the insurance market to the private sector, integrate into the world economy and attract foreign investment To achieve in the near future a well-structured competitive insurance market where quality, reasonably-priced products are available from reliable insurers. 25

26 Insurance Market Liberalization The comprehensive insurance liberalization plan with the technical assistance from world bank group has been approved Foreign insurance business underwriters, brokers, and agents will be guaranteed license Liberalization should result in fair competition, protects policyholders and the stability of the local insurance business 26

27 Challenges Ahead A need to educate all participants in the marketplace, including domestic insurers and consumers Sound licensing practices must be implemented that adequately meet the financial needs of Myanmar Lack of technical and operational expertise in the market, no in-house actuarial expertise to introduce new products for its pricing process The regulatory and supervisory framework should be strengthen These are very old outdated products in the market 27

28 THANK YOU 28