September 23, 2017

Central Bank of Myanmar extensively engaged in monetary stability

Vice President U Henry Van Thio and Yangon Region Chief Minister U Phyo Min Thein at Grand Opening Ceremony of BIDV Yangon Branch on 31 July 2016. Photo: MNA

The Central Bank of Myanmar has become an independent financial institution after the new Central Bank of Myanmar Law was enacted in the year 2013. The CBM is in the process of implementing its three main objectives—monetary stability, financial stem stability as well as payments and settlement system development.
Monetary policy
As part of its efforts for implementation of monetary system, the Central Bank of Myanmar is extensively engaged in interest rate policy, reserve money requirement, exchange rate policy and free market activities.
With a view to ensuring monetary stability, the CBM is implementing the Reserve Money Targeting so that inflation or stability of prices can be maintained. With this end in view, the CBM is working hard in order to be able to set medium-term inflation 7 per cent on average, reserve money 13 per cent and monetary volume increasing rate 24 per cent.
If the reserve money increasing rate is greater than the target it is put to deposit auction and the surplus is subtracted. The deposit auction was introduced in the year 2012, and there are 20 times of deposit auction in one year period of the new government spanning between 2016 and 2017.  One deposit auction is K 333 billion on average and the surplus is deducted from the market. The interest rate over deposit auction is not limited and the interest rate based on market is roughly from 5.5 per cent to 7.4 per cent. The term of deposit is two weeks, four weeks and 12 weeks. The deposit auction online system is being carried out through the CBM-Net.
Easing of interest rate
The CBM is trying its utmost to ensure increasing of public savings, interest rate which covers inflation and reasonable interest rate for investors. It is also making arrangements for the easing of interest rate so that it could reflect market instead of prescribing the interest rate as a policy. The CBM is also selling government exchange certificates and government treasury bonds on behalf of the government for budget deficits which trigger inflation.
Sale of treasury bonds
The Central Bank of Myanmar on behalf of the Ministry of Planning & Finance was selling government exchange certificates to banks and other financial institutions starting from 28 January 2015 through competitive bidding, and government treasury bonds to banks and other financial institutions starting from 20 September 2016 through competitive bidding system with the aim of reducing the fulfillment of the CBM in the State’s budget deficit and of ensuring the effective load management of the government.
Foreign banks (branch) chosen to be opened
In the 2016-2017 fiscal year, K 1181 billion worth government treasury bonds with an interest rate ranging from 7 to 9 per cent were sold and K 3032 billion worth government exchange certificates with an interest rate ranging from 8.6 per cent to 9.6 per cent were sold.
The Central Bank of Myanmar granted permits to foreign banks (branch) in a transparent manner and it has been able to engage in development of financial inclusion as well as development of mobile banking, mobile financial services and mobile network operators. In that regard, altogether 13 foreign banks (branch) have been put out to tender and chosen transparently to be opened.
Project loan
The foreign banks (branch) are in the direct service of both foreign companies and domestic companies in the country through the project loan and trade finance. There are 13 foreign banks (branch), 24 private banks with 1475 branches, 16 private financial firms, 45 foreign bank representative offices and two foreign financial firms in the country. As part of financial inclusion to be implemented in 2025, the CBM is opening more bank branches to ensure that unbanked people have access to monetary services.
Mobile financial services
The CBM on 30 March 2016 issued rules and regulations on mobile financial services to be undertaken by two International Mobile Network Operators—Telenor and Ooredoo as well as MPT. Meanwhile, Non-bank Financial Institutions will be allowed to engage in mobile financial services and Digital Money Myanmar Ltd (Wave Money) has been allowed to do so.

CBM Governor U Kyaw Kyaw Maung at 52nd SEACEN Governors’ Conference/High-Level Seminar and 36th Meeting of the SEACEN Board of Governors. Photo: MNA

Transforming rule-based supervision into risk-based supervision
To stabilize the banking sector, the CBM is transforming rule-based supervision into risk-based supervision in order to check whether the private banks abide by the rules and regulations or not. Financial soundness indicator was issued for the first time with the assistance of International Monetary Fund (IMF), said the Governor of the Central Bank of Myanmar. The CBM has introduced card payment systems such as Automatic Teller Machine (ATM) cards and credit cards to improve cash payment system and to reduce currency use.
The CBM-Net that connects with electronic technology was launched in January 2016 for all banks in Myanmar to be able to materialize an effective and advanced cash payment system. The CBM-Net member banks will be able to enjoy Real Time Gross Settlement and Mechanized Cheque Clearing through CBM-Net System for paying Nostro A/C in Myanmar currency.
In order to reduce currency in circulation and pay card system with the use of electronic technology, the CBM has already allowed the public to use Visa Card, Master Card, JCB Card and UPI Card not only at home but also abroad. Moreover, the local banks have been allowed to issue the prepaid cards. The local banks in Myanmar were permitted to issue International Cards (Master/Visa/JIC/UPI) and International Credit Card (Clean Card) that can be used at home and abroad in January 2017. The local banks were also allowed to issue “MPU-JCB, MPU-UPI” Co-branded Cards so that MPU Cards issued by the local banks can be used in the international network, U Kyaw Kyaw Maung added.
Interbank lending system    
The CMB issued a new instruction in the fiscal year 2016-2017 to introduce Interbank Lending system which is practiced in international banking market as interbank credit transfer system had been used in the past. Under the new instruction, all local banks will have a chance to carry out their banking activities through the Central Securities Depository System. Currently, Interbank Lending System is being practiced by the local banks.
The currency SWAP system and currency forward system were allowed by the CMB starting from the financial year 2016-2017 to be able to prevent the losses that occur from exchange of foreign currency between the local banks and their clients or among the local banks. So, the SWAP and Forward system that fix currency exchange rate not to happen losses in purchasing and selling foreign currency can be used in the future.
Reserve fund
The Central Bank of Myanmar got the low interest rate because its reserve fund is being kept on deposit at foreign banks as Fixed Deposit. The CBM included in Reserve Advisory and Management Program (RAMP) as of 2016-2017 fiscal year and was undertaking Portfolio Investment like the central banks of other countries. Under the Portfolio Investment, the CBM is attracting international investments to earn more income of the Benchmark Returns from the Bonds issued by the foreign countries.
The CBM disbursed loans to small and medium enterprises (SMEs) in cooperation with international organizations. “Arrangements are being made to provide capital from the banking sector for the development of private sector as private sector plays an important role in market-oriented system. SMEs operate particularly in private sector and there are so many restraints and difficulties for the SMEs to ensure loan disbursement from the banks,” U Kyaw Kyaw Maung said.
Three types of loan
The CBM Governor continued that the loans are being offered to the SMEs through three types of loans namely – loans through local banks, foreign loans through international organizations and scheme to ensure loans. All plans have been made by the Central Bank of Myanmar during one-year period of the new government.
The CBM implements financial policy, decides foreign exchange rate policy, gives suggestions to the government concerning foreign exchange rate system and manages foreign reserve fund of the State. Moreover, the CBM also supervises financial institutions, disburses loans to the private banks and links between the financial institutions and the government.

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