Over the last decade, Myanmar people gradually gained confidence that their hard-earned cash was safe if they deposited it in the bank, rather than literally hiding it under their bed, as many had done in the past.
But following last year’s 1 February military coup d’état, the Myanmar banking sector has seen a rush on the ATMs, unscrupulous middlemen profiting, an abrupt and damaging change in foreign exchange rules, and the shocking shooting of the deputy Central Bank of Myanmar governor on her doorstep.
Little surprise then that the Myanmar people consider the banking sector has returned to its “Wild West” untrustworthy status.
Troubled past
The banking sector in Myanmar has a turbulent past, starting with nationalizations during the 1962 Ne Win coup. Subsequent banks were overseen by military owners and their cronies, and appointed politicians were given powers to seize assets whenever they liked. People had little trust in banks or the economy, with the generals even bankrupting the country several times by remonetizing the currency. As a result, there were no foreign banks in the country until the Central Bank of Myanmar (CBM) granted a handful of foreign bank licenses in 2014, ending over 60 years of international financial isolation.
But hopes of further reform was quickly dashed when Min Aung Hlaing seized power in the February 2021 coup. Within hours of the coup the streets were full of protestors. By the end of the week, queues at ATMs became noticeable across the nation’s cities and towns.
For most of its modern history Myanmar has been a cash-based economy, and skepticism towards banks may have helped citizens deal with this latest crisis. It is not uncommon, for instance, to see huge piles banknotes and clerks counting money when entering a Myanmar bank.
But things started to change after the 2010 general election, when it seemed that the generals were finally loosening their grip on the economy and banking system. Five years later and the Financial Management Law (2016) introduced e-banking, and financial institutions started promoting mobile wallets, digital remittances, and e-payments. The following year saw a massive growth in the financial sector, and foreign investment was at an all-time high. But Min Aung Hlaing’s power grab put a dramatic end to these reforms, with devastating consequences for the people, economy and the banking sector.
Shots fired in anger
Over a year on - and to the shock of many – the deputy governor at Myanmar’s Central Bank Than Than Swe was shot at her home earlier this month, illustrating just how much the military regulators are hated in the country.
She reportedly survived the shooting.
The attack was claimed by a group called the Yangon Region Military Command, a group who say they represent the National Unity Government (NUG). The shooting was said to be a response to the recent punitive currency control measures from the bank, which forces citizens to exchange foreign currency within 24 hours of receiving it – at a specified lower rate.
The initial statement by the junta authorities imposing the controls prompted outcry from a number of foreign entities in Myanmar including the Japanese embassy, speaking on behalf of its investors. A statement by the American Chamber of Commerce and British, French, Australian chambers and similar groups said the requirement to swap all dollars and other foreign currencies for kyat would lower Myanmar standards of living, discourage foreign business activity and foreign investment and cause trade tensions.
However, within three weeks of the statement being made, a Myanmar junta official said they are exempting approved foreign investors, embassies, United Nations agencies and non-government organizations from its rules requiring conversion of foreign exchange into the local currency. Details of the central bank’s new rule are being worked out, said Aung Naing Oo, the army-installed government’s minister for Investment and Foreign Economic Relations, in an online briefing this week, reported AP.
He said foreign companies and others qualifying would be given an automatic exemption. That includes businesses operating in Myanmar's only special economic zone, Thilawa, south of the biggest city, Yangon.
Tough for the small businessperson
In terms of day-to-day transactions and access to money, it is clear that the government’s mismanagement is having a drastic impact on peoples’ lives – and not just for those holding foreign currencies.
“He works for a proper company, and we never thought he could cheat us like that,” said Ko Wai Lin, an entrepreneur running a small garment business.
Ko Wai Lin is like millions of ordinary Myanmar citizens who were left cashless after the coup. He had plans of expanding his business and tried to access his bank deposits via a middleman. Many retailers stopped offering withdrawal services after the coup and, as ATMs were out of action, many people turned to these self-styled financial agents.
“He helped us access our money many times in the past, and his fees were always low. I trusted him because it was difficult to withdraw money from the bank. But the last time I transferred funds to him, he just ran-off with the money,” Ko Wai Lin explained.
In total Ko Wai Lin lost 600 Lakhs ($34,000) in this last transaction, after being offered a payment in cryptocurrency. His friend, who used the same broker, lost 1,400 Lakhs ($79,000).
A Lakh is 100,000.
“I produce garments to sell online. We receive digital payments from our customers, but we have to pay cash for raw materials. Nowadays, banks demand up to 5 per cent for transaction fees, and that adds up when I place lots of orders,” he said.
During the first weeks after the coup banks permitted customers to apply for access to their accounts, but this was limited to larger branches in the city and access hours were early in the morning. Thousands of people gathered at these banks, some arriving as early as 3 a.m. in the morning to reserve their place at the teller queues. Living out of town, Ko Wai Lin had no chance of making a withdrawal.
Other customers would never be able to access their money at all, particularly if they were arrested as part of the protests.
After spending five months in prison after his arrest, Min Thu was finally released in October 2021. In need of medical treatment, Min Thu needed to access his savings.
“That’s why I tried to withdraw money from the bank, for medical expenses” he said.
“But it was impossible. I couldn’t even take out 3 Lakhs ($167), and that was after making several appointments with the bank. I couldn’t get an appointment because nobody answered the phone,” Min Thu explained.
He heard that some customers could withdraw funds if they showed that they needed the money for health reasons. “I had to submit a health certificate, and a calculation of the medical costs,” he said.
It is more than six months later, and Min Thu is still waiting to access his money from the bank.
The coup and Myanmar’s ATMs
The week after the coup rumours started spreading about the country’s banks. People worried that currency notes would be demonetized, and the banks would collapse. German company Giesecke and Devrient announced they had ceased selling products to print the Myanmar kyat, and fears intensified. Throughout the city increasing numbers of people lined the streets outside shopping centres, hoping to withdraw small amounts of cash from the few operating ATMs.
Most people knew that, with the widespread Civil Disobedience Movement (CDM) disrupting government supply chains, banks would find it difficult to recapitalize with notes. But Win Thaw, the CBM’s vice chairman, put a different spin on the situation.
“In this period of the political transition service personnel took part in the CDM. As a result, many banks failed to run smoothly. Due to the shortage of service personnel many banks closed their offices. People were spreading rumours that banks were in an insecure situation,” Win Thaw said in a statement.
“So, everybody should go to their bank and take out their money. It was [the CDM’s] intention to destroy our national economy and our banking system. In addition, some queued up in front of ATM machines without withdrawing money, [thus] ruining people’s trust in our banks. That’s why the Central Bank issued limits and restrictions to maintain the stability of the banking system.” In line with Min Aung Hlaing’s propaganda, Win Thaw labelled the military coup a necessary ‘political transition’.
It is laughable that citizens could be blamed for creating fake queues in front of ATMs, when in reality most people had long given up on banks altogether. Within weeks, gold prices had reached an all-time high, corner stores were starting to see severe shortages and prices of daily goods were soaring.
The collapse of the banking sector poses many problems for Myanmar, not only economic but social too. As businessman Swe Tun suggests: “To put it simply, a failing banking system can destroy not only businesses but also the entire economy. Banks play a vital role for all of us. It’s our survival, with services ranging from investing money in new businesses to giving out salaries to employees.” But given Myanmar’s financial history, people’s deep-seated distrust of banks may have helped them better survive the current collapse.
“If countries like the US had a similar political situation as our country is now facing, it would be way worse,” said businessman Dr. Soe Tun.
“In the US people have a bank account for everything. Everything is digital. If people can’t access digital money anymore, the whole system would go down. In our country we still have a lively cash economy. That’s why Myanmar is the only country that can withstand such a crisis when all banks stop operating for several months,” he added.
In these times, just like in the crises of 1964 and 1987 when General Ne Win’s currency remonetizations wiped-out savings across the country, there was a loss of confidence.
Not long after Ne Win’s coup, the government introduced its first Demonetisation Act (1964). Aimed at curbing inflation and targeting the so-called Chinese and Indian capitalists who were seen as destroying the “Burmese way to socialism”, 50 and 100 kyat notes ceased being legal tender overnight. The central bank promised to reimburse old notes, but exchanges were subject to scrutiny and amounts over 4,200 kyats attracted a hefty tax. In 1985 the government ordered citizens to redeem their 20, 50 and 100 kyat notes for the newly denominated 25, 35 and 75 kyat notes – numbers Ne Win believed to be auspicious. Just two years later and these notes were themselves replaced by 45 and 90 kyat bills. These remonetizations cause people to lose faith in the currency, rendering the kyat worthless and causing rampant inflation. Approximately 80 per cent of the currency’s worth was wiped out in the 1987 remonetization, leading to nation-wide protests the following year. In such times people turn to hard assets like gold, precious stones and other commodities as stores of value.
Return of the brokers
The CBM’s first official intervention after the coup only added to the panic, capping withdrawal limits to 5 Lakhs per day for those with credit or debit cards. However, most banks set their own limits at 3 Lakhs per day – even though very few were open, and none of their ATMs were stocked with cash.
Bran Sai is a small entrepreneur from Kachin State. He has no official company accreditation, and so is subject to the same withdrawal limits as other customers. “Private banks allow us to withdraw only 5 Lakhs ($281) a month, as does the Myanmar Economic Bank. I need money for my business almost all the time. If I need 100 Lakhs ($5,600) the transaction fees are 6 Lakhs (U$D 338),” he said. Three months after the coup, at the end of April 2022, the Central Bank issued a notification for banking customers to open new bank accounts. The new regulation allowed for savers to transfer money from their original bank accounts, but deposits from the new special accounts could only be accessed with new limits. Some believe that the regulation would make it easier for only ‘approved’ account holders to access their funds, leaving ordinary entrepreneurs like Ko Wai Lin still waiting. “Before, there was no such thing as normal and special accounts. Now we have two kinds of accounts. This doesn’t help us run our business or pay salaries to the staff and purchase raw materials we need,” he said.
With the CDM putting pressure on bank staff, some people could still find ways to get cash out – via connections inside the bank. No one can stop money from being withdrawn via the back door, giving rise to the current brokerage market. Middlemen and bank staff often work together, charging high transaction fees and allegedly stealing millions of Kyats from their customers.
The kyat and the dollar
Since the military coup, gold and commodity prices have risen sharply as the kyat has continued to inflate. In January 2021 the local currency was 1,350 kyats to the dollar. By March 2022, it was 1,780 kyats – a 30 percent decline in just two months. In the days following the coup, Myanmar’s foreign reserves also dwindled, as the United States froze $1 billion in reserves held at the New York Federal Reserve. The World Bank also suspended funding projects throughout the country. The CBM was forced to abolish its target rate of 0.8 percent to the dollar in September, as the kyat fell a further 30 percent – to around 2,700 to the dollar.
In an attempt to attract currency inflows from other sources, the CBM approved the direct payment of Chinese Yuan and Thai Baht in cross-border trade in March 2022. An unnamed banker explained the reason behind the move: “The Central Bank wants the dollar to become less important for the Myanmar financial sector. If the value of the world's standard currency fluctuates, you see that Myanmar's currency becomes volatile.”
Freezing ‘terrorist’ accounts
After the coup the Central Bank was also concerned about the flow of money towards so-called ‘terrorists’, or those involved in the nationwide CDM and People’s Defence Forces (PDF). Financial expert Ye says that all banks keep strict control of inflows and outflows at each branch. “This information must be sent to the Central Bank the next day. So, the Central Bank can check all these statistics on a daily basis,” he said.
An important instrument of control is the CBM-NET network. This network was created with the help of the Japan International Cooperation Agency (JICA) in 2016 and allows the Central Bank to access financial information at any time. It was supposed to provide a secure and efficient settlement infrastructure, by automating finance and banking transactions – bringing the country in line with the rest of the world. But now the network has become an instrument of the military, to crackdown on dissidents.
Several ‘suspicious’ bank accounts, connected to the NUG, the PDF or CDM organizations, have already been frozen. Among those is the account of Ma Sa Dar. She donated money to the resistance movement a couple of times.
“I have been running an online shopping business for three years. That’s why I have daily earnings and expenditures. The other day my K-Pay account was frozen. I enquired about this at my bank, and they said that the Central Bank ordered it. They did not tell me why. I had 34 Lakhs ($1,906) in my bank account, and the bank won’t tell me how I can unfreeze my account,” Ma Sa Dar explained Dr. Soe Tun suggested that, by deeming the NUG and PDF as terrorist organizations, the military was legally able to confiscate the possessions and assets of dissidents across the country under the Terrorism Act.
“Some gave money to the NUG or the PDF as donations. But their bank accounts were frozen, and some donors had their houses sealed off. We need not to lose sight of the current situation. We are not in the position to criticize these laws against terrorism. We are residing in Myanmar and the existing laws are made by the SAC (State Administration Council), so we must respect them. We cannot blame banks when our accounts are frozen,” he said.
Everything is about trust
So far official statements from officials at the CBM have been somewhat blasé, if not downright unconvincing. Vice-chairman of the bank, Win Thaw, simply said: “The public needs to be patient. The restrictions have been imposed for the benefit of the people. To prevent the efforts of destructive elements to destroy the economy and government projects the country needs, restrictions have been made.”
Much like the empty promises of politicians overseas, he ended with the familiar refrain: “I would like you to know that the current restrictions are temporary.”
Banks are institutions that built upon people’s trust. The harder it is for customers to access their money, the less trust they are likely to place in their banks.
Financial expert Ye explains: “It is important to know how much trust people and businesses have in the banks, as well as the Central Bank. Do they trust the laws and regulations prescribed for the banks? Based upon this level of trust, international banks are given ratings. That makes it easy for us to say which banks are trustworthy, and which are not. In our country the Central Bank cannot reach out to the public and measure our level of trust.”
Without any trust, or reliable measure of trust, it is likely that Myanmar will remain a cash economy. Though some have turned to cryptocurrencies, many worry that this will also be closely overseen by the military – much like ordinary bank transfers.
“We want to use our hard-earned money,” said Bran Sai. “We want the banks to regain public trust. If we trust our banks, we will deposit our money. But without that trust we will keep our money somewhere else. I don’t think I will ever see my money again until the political and economic situation returns to normal.”
Without any change to military rule, and with the latest CBM notification essentially punishing those who hold foreign currencies, the country will once again return to a black market for dollars. Light at the end of the tunnel?
One year after the military coup, and some banking services have gradually returned to normal – according to Dr. Soe Tun: “Banks had suspended their hire-purchase loans, some banks have
resumed issuing mortgage loans and want to start again with credit for cars. The fact that trade financing has been granted shows that the situation is becoming better.”
This suggests the situation is gradually improving.
“We must not neglect the fact that businesses are gradually returning to normal. Transaction fees are decreasing. That means it is not necessary for people to take their money out of the bank,” he added.
It is doubtful the banking sector was ever independent during the Myanmar’s short period of democracy. It is clear that any sense of independence was destroyed after the February coup last year. The four state-owned banks and the semi-private banks, with the state as the primary shareholder, are controlled from Nay Pyi Taw. The Myawaddy and Innwa Bank are owned by the military, with the remaining private banks owned by military cronies. The military has never loosened its grip on the banking sector in Myanmar, despite the recent technological and infrastructure changes over the past decade.
The economy is also suffering due to the COVID-19 restrictions. The World Bank reports that at least one million people will lose their jobs in Myanmar as a result, and that by 2022 the poverty rate will double from 2019. It is difficult to imagine how the economy can recover without a functioning banking system.
When monetary policy doesn’t work, people will no longer trust the banking system or have faith in the currency. The banks can only recover when people put their money in the banks, but very few people in Myanmar want to risk handing their hard-earned kyats over to the much-hated military.
This article was developed with the support of the Money Trail Project (www.money-trail.org)
A brief history of banking in Myanmar
The first bank in Myanmar dates back to 1861, when the Indian Presidency Bank of Bengal opened its doors at their Rangoon branch. Up until World War II Indian Chettiars (money lenders) made up a large section of the banking (formal and informal) sector, providing loans for businesses and individuals across the country.
After the war, Myanmar’s newly founded independence attracted more international banks, making it one of the most prosperous financial centres in the region. With foreign investment flourishing and a stable kyat, the banking sector became a bedrock part of Myanmar’s economic growth in the post-independence era.
But all that changed on March 2, 1962, when general Ne Win seized power in a bloodless coup d’état.
Since then Myanmar’s banking system has been dominated by the military. As head of the Revolutionary Council, Ne Win nationalized all privately-owned domestic banks in his first year in office. At the end of the decade, as the economy slid into chaos and dysfunction, The Peoples’ Bank of the Union of Burma Act (1969) made it possible to privatize all banks – including the 15 foreign banks in operation. Many banks were merged into an entity called The Peoples’ Bank, which was managed by a board of military officers. In 1979 the remaining state-owned banks were also merged with The Peoples’ Bank.
In the 1990s, the generals created a business conglomerate called the Union of Myanmar Economic Holdings Limited (UMEHL). Under management of the UMEHL, a new state bank called the Myanmar Economic Bank was established. Proceeds from companies controlled by the military are not considered income for the state and, for many years, have been funneled into special accounts held at the Myanmar Economic Bank. In 2017, these accounts were worth more than $9 billion.
The nationwide 1988 protests and subsequent 1991 elections, the results of which were ignored by the junta, ushered in a new breed of general. Few had interest in Ne Win’s socialist ideals, and wanted to steer the country towards a more capitalist outlook – whilst still refusing to hand over power to Aung San Suu Kyi’s democratically-elected National League for Democracy. Part of their strategy was to reintroduce private banks. In 2002 the number of private banks had started to outnumber state-owned ones, at 22 and 5 respectively.
With private investment on the rise, and a new shadow finance sector emerging, the new banks drew in lots of new customers – all hoping to receive high rates of return. But the advertised rates were too good to be true, and customers rushed to withdraw their investments at two of the largest banks at the time – Mayflower and Asia Wealth banks. Asia Wealth was considered a ‘money laundering concern’ by the US Treasury, later living up to its reputation when it failed to return investments to customers. Myanmar customers lost confidence in their banks again.
Throughout the 2010s, despite the economic changes, Myanmar remained a cash-based economy. Even with e-banking and electronic transfers (when they worked), the banking system remained unsuitable for the 21st century global economy. Many hid their savings at home, and the informal hundi money transfer system was popular, particularly for Myanmar migrant workers seeking to transfer earnings back home.
As the generals were focused on economic development, reforming the banking sector was one of the first tasks of the Thein Sein government after it came into power in 2011. In July 2013 the Central Bank became an independent organization, free of direct control by the Minister of Finance. For the first time the people in Myanmar could use internet banking and get their cash from an ATM. CB Bank opened the first ATM in Myanmar in November 2011. In 2020 there were a total of 68,000 ATMs across the country, and digital banking and microfinance had been extended to rural people for the first time. By the end of 2020, Myanmar had four state-owned banks, 27 private banks, 13 foreign banks and 46 foreign bank representative offices. And 20 million of the 51 million Myanmar people had one or more bank accounts.
As we write the latest chapter to the story of Myanmar banking, supreme-commander Min Aung Hlaing has struck a blow to an uplifting ending. As of February 1, 2021, he and his cronies have pulled the plug on the democratic experiment, ending a fairytale in one of the fastest-growing banking sectors in the world
