Friday, September 22, 2017

Six months on, MEB still main T-bill buyer

State-owned Myanma Economic Bank continues to dominate the bi-weekly government Treasury bill auction nearly six months after it began.

The Central Bank of Myanmar has held the auctions once every fortnight since mid-January to provide an alternate source of government borrowing.

Several Central Bank and Ministry of Finance sources told The Myanmar Times that Myanma Economic Bank continues to be the main buyer in the fortnightly auctions, with its participation only increasing.

The bond auctions have been urged by various experts and organisations as another avenue to finance budget deficits. The government deficit is set to grow this year on the back of increased spending, with a drop in natural gas export revenues also likely to affect the bottom line.

The auctions have seen little interest from non-state banks, however, with Myanma Economic Bank purchasing about 80 percent of each issue.

One concern is that the interest rates have been too low to attract private sector interest. The May 20 auction from the Central Bank offered rates of 7.5pc per annum for its bills, which mature in three months, below the 8pc that experts say is necessary. As a result, only about half of the K50 billion (US$46 million) worth of bonds on offer were sold.

Interest rates on loans are capped at 13pc and the floor on deposits is 8pc, which affects all banks including Myanma Economic Bank.

U Mya Than, chair of Myanmar Oriental Bank and a former senior Myanma Economic Bank official, said state banks usually take a traditional view and are cautious about investments. Still, state banks must also take in at least 8pc to be able to pay depositors.

“So even if yields from bonds are less than deposits, they will try to reduce their losses while they buy bonds,” he said.

A Myanma Economic Bank manager based in Nay Pyi Taw said a large portion of the banks revenues go to credit-worthy government borrowers.

“Our policy when investing in Treasury bills is that they are more secure than [generating revenue from] loans,” he said. The bank is picky with what organisations it lends to, claiming a low non-performing loan ratio of 2pc, he added.

Commercial banks can also afford to buy bonds if they yield more than 8pc. Currently, most domestic banks lend out about 70 to 75pc of total deposits, meaning they must generate even more revenue as there are more deposits than loans. A 5pc reserve requirement also cuts down on cash that banks are able to lend out.

The government also issues treasury bonds of longer maturity terms through private placement, with interest rates from one year of 8pc and five years of 9.5pc.

Myanmar Economic Bank and Myanmar Securities Exchange Centre have been the underwriters for government bonds since 2010.