Myanmar’s banking sector is open to the world

As Myanmar begins to open up to the world, the nation’s economy, along with its banking sector, is poised to grow rapidly

Myanmar industry
A traditional fisherman on Inle lake, Myanmar. As his country joins the ASEAN Economic Community, a swathe of changes will come to Myanmar's economy and industries 

In November 2015, Daw Aung San Suu Kyi’s National League for Democracy (NLD) won the Myanmar national election in a landslide, ending 50 years of military rule. With a number of business-friendly policies on their agenda, the nation’s new leaders have signalled they are enthusiastic to reopen Myanmar to the rest of the world. Coupled with a young population, the nation’s economy and banking sector are set to quickly expand.
Since opening in 2010, AYA Bank is one financial institution that has already seen a significant amount of growth. Mrassociates had the opportunity to speak to David Soe Lin, Acting MD of , about the future for Myanmar.

Business is clearly high on policymakers’ agendas. With NLD holding the balance of power in both chambers of parliament, it is equipped with the legislative muscle to get through the laws needed to transform the country’s economy. The government presented a 12-step plan in July 2015, listing the areas it plans to focus its economic policy on.

Supporting competition and a vibrant private sector was first on the agenda, with a specific mention of supporting growth in the agriculture and livestock sectors. Attracting foreign direct investment is also a focus. Infrastructure development and improving state-owned industries were also on the list, as were strengthening public financial management and improving fiscal prudence.

Job creation was also mentioned as an initiative to reduce domestic poverty while encouraging migrants and displaced people to return to Myanmar. To support the people already residing in the country, greater workforce development was also listed.

Furthering business opportunities
The global community is paying attention to these changes. The US has already softened some sanctions against the country – perhaps as an early step towards joining other world powers that have already lifted their own. While no doubt a gradual process, there is a noticeable change in the diplomatic climate surrounding Myanmar.

Between improving international relations and pushing towards a more business-friendly environment, a swath of changes in Myanmar’s industries will also soon begin. Combined with a rapid uptake of new technology by a youthful population, the country’s young banking sector is one of many sectors that are set to flourish.

“In the midst of these rapid developments, the banking sector has yet to play its due role in a rapidly growing and emerging economy”, Soe Lin said. “Banking penetration remains under five percent, and financial services’ weight in GDP is 10 percent at best, compared to over 30 percent in Cambodia. By 2020, this is widely expected to grow to over 20 percent.”


Potential benefit of a free trade agreement between ASEAN and north Asia

In the past, Myanmar has performed poorly on the World Bank’s Ease of Doing Business Index. It most recently ranked 167th out of the 189 countries measured. Soe Lin told Mrassociates improving Myanmar’s ranking is another goal the government is looking to achieve, with the introduction of a draft investment law and a draft companies law designed to get Myanmar into the world’s top 100.

Also of note is Myanmar’s recent entry into the ASEAN economic community. According to Soe Lin, the nation’s entry will provide a huge windfall for the economy: “With Myanmar’s entry into the ASEAN Economic Community, the liberalisation and integration of Myanmar’s economy will follow. According to think tank Copenhagen Consensus Centre, a free trade agreement between ASEAN countries and its neighbours in northern Asia will bring $243trn in trade benefits. Myanmar’s crucial location between India and China means it will be the focal point in years to come.”

Furthermore, new regulations will allow banks to match the growth of the rest of Myanmar’s economy. According to Soe Lin: “The archaic interest rate and foreign exchange management regimes have kept the banking sector from matching the economic growth. Compare this archaic regime with the expected demographic boon powered by Myanmar’s youthful population, with a median age of 27.

“There are 14.5 million people in Myanmar who are between the ages of five and 19. This large segment will enter the workforce within the next 10 years, contributing to the increasing GDP per capita growth of between 7.5 to eight percent per year.”

Another priority for the government is creating monetary and fiscal stability, plus the development of a liberalised financial system that can sustainably
provide capital to businesses, farmers and households.

Getting an international credit rating was another goal outlined, as is promoting inclusive economic growth and development to enable citizens to escape poverty. The environment was also listed as a concern, with the government looking to ensure natural resource extraction is transparent and sustainable, and extend existing regulations to include the mining industry. Combined, all these initiatives should see Myanmar’s economy open up to new opportunities, in particular within the banking industry.

Technology and people
According to Soe Lin, AYA Bank is poised to play its due share in the forthcoming growth expected in the country. “Since opening the first branch in August 2010, AYA Bank has rapidly built a nationwide presence to provide a full suite of retail and commercial banking products and solutions uniformly across the country. Expanding rapidly since its inception, AYA Bank has over 165 branches and more than 365 ATMs countrywide. As of July 2016, it has become the second largest bank in the country in terms of branches, deposits, and loans.”

With Myanmar’s entry into the ASEAN Economic Community, the liberalisation and integration of the country’s economy will follow

Banking isn’t the only sector to be witnessing a massive spurt of growth, with Myanmar also experiencing phenomenal advances in technology. Ericsson’s Mobility Report in 2015 listed Myanmar as the fourth fastest-growing mobile market in the world, with mobile penetration rocketing from less than 10 percent in 2011 to over 60 percent in March 2016. Telenor and MPT now count 16 million and 20 million users each, while Ooredoo – which will be the first telecom provider to offer 4G network coverage in the country – has about 7.5 million customers.

Due to the previously slow uptake of bank accounts among the country’s residents, attracting account holders has been big business. AYA Bank has found an edge in attracting customers through levering the growth of technology and differentiated customer service. The bank expects its account base to surpass one million by the
end of 2016.

Soe Lin said AYA Bank has always been at the forefront in providing modern retail banking services and products, and 2016 has already seen a number of extraordinary milestones achieved. “Staying committed to improving consumer lifestyle and promoting the country’s transition to a cashless economy, AYA Bank’s initiatives and launches with Union Pay and JCB are already setting the tone for increasingly aspirational customers. The international credit and debit co-branded cards allow cardholders to make payment transactions through global acceptance networks in 160 countries, as well as in Myanmar.”

Another significant achievement of AYA’s is being the first bank to launch a bill payment service with Yangon City Development Council (YCDC), which enables YCDC’s customers to pay bills via the bank’s physical and electronic channels. “These bills include utility payments for property, land, sewage and water and for YCDC’s administrative services”, Soe Lin said. “With the sign up of YCDC as a biller, this enables the customer to have the flexibility and choice of payment location and make hassle-free payment electronically instead of queuing up.”

Improved banking standards
Corporate governance has also been a priority for the bank, becoming the first in Myanmar to appoint three independent non-executive directors (INEDs) to the board.

“The Audit Risk and Compliance Committee and HR committees are chaired by an INED”, Soe Lin said. “This was followed up by full adoption of International Financial Reporting Standards with effect from the year ended March 31, 2015, making AYA Bank the first local entity to achieve this milestone, which is critical for integrating with regional and international financial markets. Concurrently, AYA Bank also became the first bank to be audited under International Standards of Auditing by Deloitte. This has led the way to put the country again on international investors’ radar, contrary to their impression of standards of governance in Myanmar.”

While business deals have led to this success so far, Soe Lin said the growth achieved would not have been possible without the force of human talent behind the wheel of the bank. Staff numbers have increased from 2,600 to over 6,000 in the last two years, with the average age of the workforce being below 25.

“The bank has been successful in attracting and retaining talent, contrary to the general impression of difficulty”, said Soe Lin. “Capacity building for the nation is an important part of our ethos, therefore we have invested heavily in human capital, with three training centres offering state-of-the-art training programmes and a fourth under development.” Combined, all these new prospects paint a promising future for both Myanmar and AYA Bank.

Soe Lin concluded: “With the dawn of a new era for Myanmar, the technological leapfrog in the marketplace and unique demographics, Myanmar is at the threshold of reclaiming its preeminent position. AYA Bank’s leadership in technology and innovation, its young workforce, and international standards of governance are the building blocks for Myanmar’s financial sector’s future. AYA Bank will continue to strive for excellence and set the bar high for the banking industry in Myanmar by leading from the front of the rapidly changing country.”