The interbank market for foreign exchange has been slow to
take off, as banks are still waiting for the Central Bank of Myanmar to
publish precise rules and regulations, sources said.
The interbank forex market was set up in 2013 after the government introduced a managed float for the kyat the year before. In theory banks are free to set their own rates with each other and trade the currency, but in practice the Central Bank still dominates the official forex market.
However, this cannot continue indefinitely – a growing trade deficit and a shortage of US dollars over the past few months has highlighted the need for an active interbank market.
Central Bank governor U Kyaw Kyaw Maung has previously asked foreign banks to help to expand the market. Others also see international lenders as the solution.
U Mya Than, chair of Myanmar Oriental Bank, said he had expected foreign banks to participate eagerly in helping to develop the interbank market, as well as to resolve the shortage of US dollars in Myanmar.
“However, I heard some foreign banks will not take US dollars and exchange them with local banks because of the current [uncertain] regulations. I hope the Central Bank will come out with clear policies on foreign exchange,” he said, adding that domestic banks are in discussion with foreign banks regarding potential solutions.
Mitsuhiro Kimura, general manager of the Yangon branch of Bank of Tokyo-Mitsubishi UFJ, said that foreign banks in Myanmar face a number of challenges including the underdeveloped interbank market.
The market does not offer many forex or derivatives opportunities, so we have to be careful to maintain local currency liquidity. This also limits the volume of loans we can offer to customers, he said, adding that there is a need to build the market.
Another problem is the gap between the official Central Bank of Myanmar reference rate for the kyat and the actual market rate, he said. Foreign banks are required to use the official rate, which can prove problematic when a payment is made for a large transaction, he added.
Finally, foreign banks are facing cash flow problems as they cannot settle domestic remittances, said Mr Kimura.
“I can offer two solutions to overcome some of these challenges,” he said. “The first is to encourage a more vibrant interbank market to promote kyat liquidity and the exchange of US dollars between domestic and foreign banks.” The second is to implement a settlement remittance system to ensure more efficient payments, he said.
“I heard there may be ODA [Official Development Assistance] for the Central Bank which hopefully will help kick-start these two solutions I have just shared,” he said.
Officials from Singapore’s United Overseas Bank and Oversea-Chinese Banking Corporation previously told media that they plan to provide foreign currency to Myanmar’s financial industry through loans and deposits, which would also help contribute to developing the interbank market.
A total of nine foreign banks won licences on October 1, 2014, following a heated race between a number of large international banks. The winners came from Singapore, Japan, Thailand, Malaysia, China and Australia.
The interbank forex market was set up in 2013 after the government introduced a managed float for the kyat the year before. In theory banks are free to set their own rates with each other and trade the currency, but in practice the Central Bank still dominates the official forex market.
However, this cannot continue indefinitely – a growing trade deficit and a shortage of US dollars over the past few months has highlighted the need for an active interbank market.
Central Bank governor U Kyaw Kyaw Maung has previously asked foreign banks to help to expand the market. Others also see international lenders as the solution.
U Mya Than, chair of Myanmar Oriental Bank, said he had expected foreign banks to participate eagerly in helping to develop the interbank market, as well as to resolve the shortage of US dollars in Myanmar.
“However, I heard some foreign banks will not take US dollars and exchange them with local banks because of the current [uncertain] regulations. I hope the Central Bank will come out with clear policies on foreign exchange,” he said, adding that domestic banks are in discussion with foreign banks regarding potential solutions.
Mitsuhiro Kimura, general manager of the Yangon branch of Bank of Tokyo-Mitsubishi UFJ, said that foreign banks in Myanmar face a number of challenges including the underdeveloped interbank market.
The market does not offer many forex or derivatives opportunities, so we have to be careful to maintain local currency liquidity. This also limits the volume of loans we can offer to customers, he said, adding that there is a need to build the market.
Another problem is the gap between the official Central Bank of Myanmar reference rate for the kyat and the actual market rate, he said. Foreign banks are required to use the official rate, which can prove problematic when a payment is made for a large transaction, he added.
Finally, foreign banks are facing cash flow problems as they cannot settle domestic remittances, said Mr Kimura.
“I can offer two solutions to overcome some of these challenges,” he said. “The first is to encourage a more vibrant interbank market to promote kyat liquidity and the exchange of US dollars between domestic and foreign banks.” The second is to implement a settlement remittance system to ensure more efficient payments, he said.
“I heard there may be ODA [Official Development Assistance] for the Central Bank which hopefully will help kick-start these two solutions I have just shared,” he said.
Officials from Singapore’s United Overseas Bank and Oversea-Chinese Banking Corporation previously told media that they plan to provide foreign currency to Myanmar’s financial industry through loans and deposits, which would also help contribute to developing the interbank market.
A total of nine foreign banks won licences on October 1, 2014, following a heated race between a number of large international banks. The winners came from Singapore, Japan, Thailand, Malaysia, China and Australia.
Myanmar Kyat Exchange Rate
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