Which foreign banks are most likely to receive a Myanmar license?

Which foreign banks are most likely to receive a Myanmar license?
It’s deja-vu all over again for those who remember the excitement of the 2013 telecom tender. With the Central Bank’s evaluation and selection process in full swing, Myanmar is holding its breath with anticipation: which ones of the foreign banks will be the first to receive the coveted license to carry out at least a number of banking activities in Myanmar?

The criteria the Central Bank of Myanmar (CBM) is using for the selection process are still confidential. So, this contribution is limited to some personal thoughts only. Nevertheless, it is not so difficult to understand from the public record what the Government is trying to achieve, and to match that with the pool of interested banks. On that rather limited basis, here are the big questions when it comes to determining which one of the foreign banks are most likely to be awarded the first licenses.

Will the winners be banks that already have a representative office in Myanmar? 
CBM officials have earlier indicated in press reports that the first licensees will be selected from the group of 40 or so foreign banks that currently have a representative office in Myanmar. Regardless whether that is indeed formally spelled out in the tender’s prequalification rules, I think it is fair to say that most of the banks with a keen interest in starting commercial operations in Myanmar will indeed already have a representative office here. The country’s remarkable democratic reforms and opening to foreign investment has not gone unnoticed. Since 2011, when preparations of the new Foreign Investment law were made public, 22 foreign banks have opened an office in Myanmar. So, one way or another we are likely to see the first licenses go to banks that already have a presence or, perhaps, other significant involvement in the country.

Which banks can best facilitate foreign investment? 
We know that one of the major objectives of the Government is the promotion of foreign investment in the country. So, it is logical to assume that the Government also approaches the issue for allowing foreign banks from that perspective. When you read the Foreign Investment Law, the Myanmar Citizens Investment Law and the Foreign Exchange Management Act, all recently enacted, you can easily infer a path to accessing foreign money.

In that regard, which banks would score the highest? There are two aspects to this. First of all, we need to think about banks which are strong in business banking rather than in retail. Which banks, among the list of banks with a representative office in Myanmar, have a strong corporate banking activity? Most of them do, but there are a few banks on that list which have a different focus.

Secondly, is the bank strong in countries that are or that may be major sources of FDI for Myanmar? From that perspective, historically speaking, FDI statistics for the pre-2012 period put banks from China and Thailand right at the top. More recent statistics of the Directorate of Investment and Company Administration place Singapore, Japan and Korea in leading places. Statistics are always a bit skewed, for example because a lot of investment is channeled through Singapore rather than originating from Singapore. And one thing does not exclude the other. One can easily imagine the Government wanting to have at least one bank from each country that is a major source of FDI, so that investors from that country have a bank to go to. In that sense, one could argue that banks with a strong presence in ASEAN, Japan and China may have a bit of a leg up over some of the others. That being said, the EU and Australia are potential major sources of FDI. Standard Chartered Bank and ANZ Bank are strong in these regions among those on the list of representative offices.

Which banks have experience with greenfield market entry in frontier markets? 
In the 2013 telecom tender, the Government paid much attention to selecting operators who already had experience in emerging markets, who understand a new market such as Myanmar. It would be eminently logical for the Government to use these criteria again. Not all the banks on the list of representative offices have a significant presence in emerging markets, or have greenfield experience. The Singaporean banks on the list, for example, have a presence in the large ASEAN countries such as Indonesia, Malaysia and Thailand and some have a presence in China, but their number of branches and their corporate banking profile in those countries differs quite a bit. The Malaysian Maybank is well known for its investment banking with larger regional corporates, and can also boast successful branches in the more pioneer-like countries such as Cambodia, Laos and Papua New Guinea.

Does size matter? 
It is hard to tell how much weight the Government will put in the various ways how the size of a bank is measured. If we’re talking about market capitalization, the Bank of Tokyo -Mitsubishi UFJ Ltd, ICBC, ANZ Bank, Standard Chartered Bank, Sumitomo Mitsui Banking Corporation and Mizuho Corporate Bank are among the largest on the list of banks that already have a representative office in Myanmar. Alternatively, one of the most common ratios used in the industry is the Common Tier1 capital ratio (CET1). If that is taken as a standard, historically Singaporean banks are particularly strong in this sense. For example, OCBC and DBS have a CET1 of 14.5% and 13.7% respectively as at December 2013. Possibly, the size of the bank in terms of international network will weigh even more than CET1. In that regard, Standard Chartered and ANZ which are present in 70 and 31 markets respectively including in emerging countries would likely score well, should they submit a proposal.

Who are the favorites? 
As was the case in 2013 with the telecoms, Yangon is ablaze again with rumors about possible favorites among the foreign banks. The three largest Japanese banks namely The Bank of Tokyo -Mitsubishi UFJ, Sumitomo Mitsui Banking Corporation and Mizuho Corporate Bank are through sheer size and their access to one of Myanmar’s major rising FDI sources in a strong position. Among those three, Mizuho Corporate Bank’s presence in Myanmar is of a later date than that of the other two banks, which might be a factor. Still, we think all three can be counted as favorites. The big three Singaporean banks, and the Malaysian Maybank all have subsidized a presence in Myanmar since the early nineties. Now the time has finally come for that investment to pay off, it is not difficult to imagine them putting an aggressive proposal forward. So, we count them as favorites. ANZ Bank and Standard Chartered Bank are favorites because of their size, their international coverage and their experience in emerging markets. ICBC, a massive Chinese bank with an extraordinary financial basis, is sometimes mentioned as a natural favorite in connection with FDI from China, which remains significant.

Go big or go home 
But favorites don’t always run the table. In 2012, few people predicted that Ooredoo would win a telecom license, but they did. Why is that? That is because in my experience in Myanmar, provided bidders meet the minimum threshold the Government has set for technical excellence and financial track record, there is one factor which is more persuasive than any other. This factor is, I believe, more likely to determine the outcome of a tender than the bidder’s financial strength, more than his technical savvy and more than his international experience. That factor is the bidder’s willingness to go all in, to go further than his competitors in a market with important uncertainties. We have seen this with telecom, oil and gas and with SEZ development. We have seen this with airports and with pipelines. To win in Myanmar it’s basically “no guts, no glory”. The bidder who is willing to commit more capital and resources than the competitors, to hire more staff, to take on more risk, that is very often the one most likely to win. So, in that sense it is fair to say that regardless of the size, the network or the bank’s past experience, most of the banks with a presence in Myanmar have a chance to receive the license.

And this is hard to gauge. Being a banker is usually a risk-averse profession. Who among the banks has a board that is supportive of a gutsy business plan in a highly unpredictable regulatory environment? We are about to find out.

The author, Edwin Vanderbruggen, is a partner with VDB Loi, a leading Myanmar legal advisory firm.