Central Bank of Myanmar – New Notification on Write-off of Loans

The Central Bank of Myanmar (“CBM”) issued a notification on 20 January 2022 regarding ‘write-off’ of loans given by banks and non-bank financial institutions (“NBFIs”) to related and unrelated parties.

The Notification is effective from the above date and is applicable to all banks and NBFIs (collectively, “Financial Institutions” or “FIs”).

Loan risk management

The Notification states that FIs are required to adopt and maintain internal policies on provision of and management of loans and investments.

The boards of directors of such FIs are required to authorise the adoption of internal control systems to manage risks arising out of non-performing loans; further they are required to conduct risk analysis of loans as specified in the Guidelines on Risk Management Practices of Banks issued by the CBM on 20 November 2020.

The FIs are required to adopt and implement a ‘loan risk management policy’ which would govern the steps it would take to write-off loans, advances and other balance sheet and off-balance sheet assets that are unlikely to be recovered from the borrowers.

The Notification further sets out an indicative list of items that the FIs should include in their internal policies and procedures in this regard.

Loan write-off (loans to related and unrelated parties)

The Notification guides the FIs with respect to the process of write-off of loans to related and unrelated parties.

Some of the guidelines with respect to write-off of unrelated party loans are noted below:

1. The FIs shall only write-off loans that are classified as ‘loss’ in accordance with International Accounting Standards
2. FIs may write-off loans after recognizing them as a ‘loss’ (as per the International Accounting Standards) if there is no prospect of recovery of such loans without having to file a recovery suit and failing to actually recover the money from the borrower,
3. The FIs shall continue to collect on the loans even if certain amount of money has been written off and their claims under relevant agreement (with the borrower) will not be invalidated.

Some guidelines with respect to write-off of related party loans are noted below:

1. FIs should adopt and maintain policies on loan transactions with related parties as specified in Directive No. 11/2019 issued by the CBM.
2. The internal policies on write-off of loans shall include policy on loans from related parties, and
3. The boards of directors of the FIs are required to approve write-off of loans from related parties.

Audit

The Notification provides guidelines for internal auditors of FIs with respect to review of written off assets. It also permits the FIs to appoint external auditors and consult them on write-off policies and procedures and their compliance.

Reporting to CBM

The Notification requires the FIs to submit their policies, procedures and records of decisions on write-off (including write-off of loans to related parties) to the CBM. And they are required to obtain approval of CBM prior to amending such policies or procedures or records of decisions.

Further, the Notification requires FIs to submit the record of total amount written off to the CBM every six months. The CBM will inspect the completion of such policies and their implementation at the time of their inspection of such FIs.