Thursday, September 21, 2017

Bank profits squeezed by growing competition

As rivalry in the banking sector heats up, several lenders are reporting falling profits.

In an attempt to lure customers over the past year, banks have fiercely competed in several areas including remittance fees and deposit rates.

Public companies including Global Treasure Bank (formerly under the Ministry of Livestock, Fisheries and Rural Development) and Asia Green Development Bank say that margins are being squeezed.

While remittance volumes for Global Treasure Bank rose by 27 percent in 2014-15, remittance income fell by half, said the bank’s director U Kyaw Lwin.

The country’s leading banks have cut remittance fees from 0.15pc last year to 0.05pc. For Global Treasure Bank, this hurt profits, which fell from K20 billion in 2013-14 to K18 billion last year, leading the bank to reduce shareholder dividends to 18pc from 23pc.

U Kyaw Lwin said the bank is hoping to attract more deposits and grow its loan book.

However, non-performing loans (NPLs) have become a problem – rising to 7.26pc over the past year – as some farmers in the fisheries sector found themselves unable to pay, he said.

AGD Bank has been hit even harder. Profits fell dramatically from K9.6 billion in 2013-14 to K112.6 million last fiscal year, due to lower remittance fees and rising interest rates on deposits, directors told The Myanmar Times last week.

The bank was unable to offer any dividends to shareholders this year, as it was left with just K2.43 million after tax and other payments.

Chair U Than Ye said AGD Bank had invested heavily in new systems over the past year, to allow it to become more competitive and offer new and cheaper services to customers in future.

Spending on IT and modern banking infrastructure rose to K46 billion in 2014-15 from K37 billion the year before, he said. Directors at the bank said they would reassess infrastructure spending for the next year, to avoid eating too much into profits.

U Soe Thein, deputy managing director of AGD, said new services offered by nine foreign banks have made things tougher for local lenders.

The foreign banks – from Australia, China, Japan, Malaysia, Singapore and Thailand – are permitted to offer loans and other banking services to foreign companies and their local joint venture partners, as well as to local banks – each through a single branch office.

Many have welcomed the increase in competition but some believe it may spur consolidation in the domestic banking industry, particularly as the Central Bank of Myanmar tightens regulations.

U Than Lwin, senior consultant to Kanbawza Bank (KBZ), said there are several ways to boost profits, such as offering more loans to generate interest, or sourcing more capital through deposits.

Banks should also focus on building capacity in low-risk areas such as domestic and foreign remittances, ATM services, and debit cards, he said.

“As an industry we need to focus on fee-based income rather than loans. The volume of remittances, for example, is likely to increase over the next few years, assuming the economy continues to grow.”

However, he noted that as KBZ Bank bolsters capacity in IT and mobile banking, it will need to increase spending on infrastructure in the near term.