Summary: Welcome to the latest edition of BLP’s monthly Myanmar update. We have distilled the latest Myanmar news into this ‘speed read’. Please get in touch for more information.
Parliament elects Myanmar’s President
On 15 March 2016, U Htin Kyaw was elected as the President of Myanmar. He is expected to officially assume his duties in April.
Under the Myanmar Constitution elected representatives of the Lower House, elected representatives of the Upper House and the Military parliamentary appointees each select a presidential candidate. The Lower and Upper Houses then vote on the candidates, with the person receiving the highest votes becoming the President. U Myint Swe (chosen by the Military appointees) and Henry Van Thio were elected first Vice-President and second Vice-President respectively.
NLD party leader Daw Aung Sang Suu Kyi is constitutionally barred from becoming President. She is expected to be part of the new cabinet. She had previously stated that she will be “above the President”.
Second round of foreign bank licencing
On 4 March 2016, the Myanmar Foreign Bank Licencing Committee granted four further preliminary banking licences to the Bank for Investment and Development of Vietnam (BIDV), State Bank of India, Taiwan's Sun Commercial Bank and South Korea's Shinhan Bank. These banks were selected from a pool of 13 applicants. These banks will have 12 months to demonstrate that they can carry out the business plans set out in their applications, ensure functional daily banking operations and comply with the requirements set by the Central Bank of Myanmar (CBM). If they can do so, they will be granted permanent Myanmar banking licences.
The first batch of nine banking licences were granted to foreign banks in 2014. Foreign banks with licences are allowed to open one branch and take deposits and grant loans to local banks and foreign companies in Myanmar (which is understood to cover: (i) companies wholly owned by foreigners; (ii) joint ventures between foreigners; and (iii) local branches/representative offices of overseas companies).
Financial Institutions Law
On 25 January 2016, Myanmar's Parliament passed the Financial Institutions Law 2016 (FIL). The FIL is the latest in a series of new legislation which focuses on modernising and liberalising the financial sector in Myanmar. View a summary of the FIL.
Foreign exchange measures
The CBM is set to take measures to encourage state-owned banks to participate in the interbank foreign exchange market. The reforms are said to occur after 25 July 2016, when all banks must return their banking licences in accordance with the new FIL and be issued new licences. Both state and private banks are equal under the FIL but details of any accompanying regulations are not yet available.
By law, both state owned banks and private banks must sell foreign currency to the CBM (or an official market) if that bank’s net open foreign exchange position is greater than 30% of paid-up capital. It is reported that private banks do not reach this threshold but it is a frequent occurrence for state banks, although the CBM does not enforce the rule and compel state banks to sell foreign currency.
Private banks have indicated that this lack of participation is the biggest reason for distortions in the kyat-US dollar exchange rate, as the state banks’ reluctance to sell US dollars to private banks artificially reduces supply and increases demand for US dollars. It has been alleged that state banks are concerned that trading foreign currency with private banks might deplete their own reserves, curtailing their ability to provide settlement services and payment services to foreign banks.
The Ministry of Finance (MOF) has now agreed for the net US dollar balances that private banks hold with state banks (for example, for settlement services) to be returned. State banks had previously been slow to do so. The transfers reportedly started at the end of February of this year but private banks with larger US dollar balances may take some time, perhaps up to 4 months. This should provide some additional US dollar liquidity for private banks.
Yangon Stock Exchange - update
Listings on the Yangon Stock Exchange (YSE) for fresh capital will likely only occur in July of this year. The YSE opened on 9 December 2015 and it was announced that six companies were eligible to list (First Myanmar Investment Co., Ltd. (FMI), First Private Bank Limited, Great Hor Kham Public Co., Ltd, Myanmar Agribusiness Public Corporation Limited, Myanmar Citizens Bank Limited and Myanmar Thilawa SEZ Holdings Public Limited (Thilawa Holdings)). However, it is understood that only Great Hor Kham Public (a construction company) intends to issue fresh shares. It is reported that it has engaged an underwriter but that valuation and number of shares to be issued have not been determined.
The YSE is expected to begin trading on 25 March. According to Securities Exchange Commission (SEC) sources, dry-testing is already underway and the YSE is ready to trade pending approval from the MOF. It is understood that FMI and Thilawa Holdings will initially list but trading will be limited to one company at a time for several days. They will then be followed by Myanmar Citizens Bank and First Private Bank within a few months. FMI has issued a disclosure document for listing on its website.
The SEC has so far awarded underwriting licences to KBZ Stirling Coleman, CB Securities, AYA Trust Securities and Myanmar Securities Exchange Centre. These securities companies are responsible for preparing the technical infrastructure require for share trading. The outgoing government is keen to have the YSE trading before it leaves power on 31 March. Currently the YSE is only open to local investors but may open to foreign investors once the new Myanmar Companies Law has been passed.
Number of Ministries to almost halve
The new National League for Democracy (NLD) government, which will take office on 1 April this year, has indicated that it intends to greatly reduce the number of ministries in the Myanmar executive. It is intended that there be 21 ministries within the NLD government, rather than the current 36. The proposed changes include amalgamating the six ministries of the President’s Office into a single ministry, creation of a Ministry of Natural Resources and Environmental Conservation (from the Ministry of Mining and Ministry of Environmental Conservation), creation of a Ministry of Transport and Communication (from the existing Ministry of Transport, Ministry of Rail Transport and Ministry of Communication and Information Technology.) A new Ministry of Ethnic Affairs will also be established.
It is intended that bureaucratic staff numbers remain similar, with staff being redeployed to the remaining or reorganised ministries. The parliament is currently deliberating the proposed reforms. If the reforms are accepted, NLD will appoint heads of 18 of the ministries, with the three security portfolios’ ministers selected by the Military. The Ministry of Foreign Affairs would also be ranked as the most important portfolio, in contrast to the Ministry of Home Affairs under the previous government. This ministerial reorganisation would be in line with NLD’s intention to “decrease expenditure and establish a lean and efficient government.” The NLD chairwoman Daw Aung San Suu Kyi announced in December 2015 that she did not intend to cut staff numbers dramatically but warned that those working in the public sector would have to improve their performance.
View a comparison table between the existing ministries and proposed new ministries.
Future of Special Economic Zones
The new NLD government is said to be considering the future of Special Economic Zones (SEZs) in Myanmar. A NLD spokesperson has stated that in theory SEZs are good for the economy and should be supported but that each project should be considered on a case-by-case basis. NLD has indicated that it will need to study the commitments given by the current government to foreign investors and to speak with affected regional and local governments to determine the future of an SEZ.
The Special Economic Zone Law of 2014 provides certain tax holidays, export privileges, protections against nationalization, guarantees of repatriation of profits and “one stop shop” licensing. Major SEZs in Myanmar include the Japanese-backed manufacturing SEZ of Thilawa near Yangon (which is due for completion mid 2016); the China-backed SEZ of Kyaukpyu in Rakhine State which is to include a deep-sea port and the Thailand-backed industrial and logistics SEZ of Dawei in Tanintharyi Division.