Bank Fees Now Included in Interest Cap

Following the recent directive of the Central Bank of Myanmar (the “CBM”), interest rate caps of 13% and 16% shall apply for secured loans and unsecured loans,. The Directive provides that “the maximum interest rate … includes all other fees collectible in lump sum or in partial payments such as guarantee fees, management fees etc. and such maximum interest rate shall not exceed under any circumstances.”

This was announced by the Central Bank of Myanmar (the “CBM”) on 15 January 2019 by issuing Directive No. 1/2019 (the “Directive”) which determines the interest rate cap as a fixed percentage over the CBM Bank Rate.

The existing interest rate cap framework

As the reader may already be aware, Instruction No. (10/2011) of the CBM dated 27 December 2011 determined 10% per annum as the Bank Rate of CBM. Instruction No. (11/2011) capped the interest rate for loans (both secured and unsecured) at 13%.

Impact

At first glance the Directive nominally increases the interest rate cap on unsecured loans from 13% to 16% while maintaining the cap of 13% on secured loans.

Market participants note however with particular attention the provision of the Directive that may be interpreted to indicate that the interest rate should include various fees frequently charged in connection with the loans.

Areas yet to be clarified

Types of Security

The list of security detailed at 1(A) of the Directive states that land and building, gold, jewelry, diamonds and other precious gems, savings bonds, government treasury bonds, fixed deposits, pledgeable securities and negotiable instruments, pledge (shares), loans with credit guarantee and other loans based on the items specified by the CBM from time to time shall be regarded as collateral that makes the loan subject to the 13% interest rate. It is not clear whether if these assets partially secure the loan, the 13% still has to apply.

Timelines

It could be helpful if the regulator could expressly confirm that the new rules apply only to loan agreement signed after its entry into force.