Cablegate: Burma's Banks: The Yellow Flag Is Lifted

This record is a partial extract of the original cable. The full text of the original cable is not available.





E.O. 12958: N/A


1. (SBU) Summary: After months of speculation and rumor the
government has allowed three of the country's six biggest
private banks to resume operations -- albeit under strict new
regs and a promise to roll heads if there are any foul ups.
Though some of the new regulations are sound, others are
overly rigid and punitive. Likewise, the future of the
country's two largest banks, not included in the
liberalization, remains in limbo. Thus we are skeptical that
the government's move will prime the pump and get large
amounts of money flowing into the economy through the private
banks. End summary.

Don't Mess This Up

2. (SBU) With a stern warning to fly right this time, or
else, the GOB on February 3 allowed three private banks to
resume operations. The three banks, Kanbawza, Myanmar
Universal, and Myanmar Oriental, were the third, fifth, and
sixth of the "Big Six" banks (by deposit size). They have
been inactive since the government effectively shuttered them
following a disastrous run on private banks in February 2003.
The three other large banks, two of which are under
investigation for money laundering and ties to
narcotrafficking, remain under wraps with no word as to their
ultimate fate. Fourteen other very small private banks have
been operating relatively freely for several months now,
though without official government sanction. These small
banks were not mentioned in the amnesty, though we expect
them to continue their low level business.

3. (SBU) The decision to release the three banks has been
rumored to be in the works for nearly six months now (see
reftel) and it is unclear why the Bank Supervisory Committee,
responsible for "resolving" the banking crisis, took so long
to fire the starter's gun. The newly freed banks will be
forced to abide by a long list of stringent new requirements,
though, some of which were discussed previously (reftel) and
some that are new.

The New Law of the Land

4. (SBU) The new regulations aim to keep a bank from getting
too large and powerful and to limit a customer's ability to
quickly move money in and out of the banks. Some of the regs
are quite responsible, but others may prove too rigid to
allow profitable and customer-friendly banking. We are also
disappointed to see the government has apparently not
reformed its own arcane banking regulations, which, in part,
encouraged the type of profligate lending and dealings that
led to the crash in the first place.

5. (SBU) The regulations governing the three banks are as

-- (1) Deposits may not exceed seven times paid-up capital.
If regulators find a violation of this, the bank must pay a
fine equal to 2 percent of the excess amount;
-- (2) Banks are no longer allowed to accept "hot money" call
deposits (Note: these were very popular with banks, and
depositors, as they offered an annual 4-10 percent interest
rate, compounded daily, with no restrictions on withdrawals.
End note.);
-- (3) Savings account customers can make only one withdrawal
and one deposit per week, though the amount is unlimited;
-- (4) Fixed deposit terms are now three, six, nine, and
twelve months. Prior to the crash the terms were one, two,
three, and four weeks;
-- (5) Interbank borrowing is prohibited;
-- (6) Lending must be based on "strong" collateral (not
further defined except to prohibit the use of gold and
-- (7) Banks may not lend to their own directors or
directors' spouses or these people's affiliated companies;
-- (8) Banks must appoint loan inspectors and "arrange to
prosecute" those who fail to repay loans (Note: the
government's responsibility in these areas is not clarified.
End note.);
-- (9) Banks may not offer credit card services;
-- (10) Banks must maintain a liquidity ratio of at least 20
percent, a capital adequacy ratio of at least 10 percent, and
a loan/deposit ratio of between 70 and 80 percent. These
last requirements existed prior to the 2003 crash, but were
poorly enforced.

Comment: Banks Just Happy to Be Alive

6. (SBU) Bankers with whom we spoke were pleased to be
allowed to resume their business no matter the new
restrictions. However, when pressed they admitted they were
not very optimistic that the new, more restrictive,
environment would allow them to attract back the customers
who fled during the crash and subsequent mishandling of the
crisis by the government. In the first day after re-opening
there were many customers -- to date prevented by government
regulation from withdrawing more than 100,000 kyat per week
($115) -- who rushed in to clean out their accounts. On the
macro level, we don't think the re-opening of these three
banks will have much lubricating influence on the country's
decrepit economy. Though included in the "Big Six," these
banks held only a tiny percentage of the deposits and loans
compared to the country's two largest, still embattled, banks
-- Asia Wealth and Yoma. End comment.

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