Thursday, September 21, 2017

Central Bank to approve credit bureau to ease up loan services

To provide wider access to loan services for local firms, the establishment of a credit bureau is expected to be permitted by the Central Bank, an official of the bank told The Myanmar Times.

The establishment of a credit bureau might allow banks to lend without taking collateral from local companies. Photo - ShutterstockThe establishment of a credit bureau might allow banks to lend without taking collateral from local companies. Photo - Shutterstock

For the setting up of a credit bureau, Myanmar Banks Association and a Singapore-based company – which has been operating a credit bureau – have submitted forms to the Central Bank of Myanmar that will allow collaboration between the two organisations, the official said on April 26.

On March 31, the Central Bank of Myanmar published guidelines concerning the creation of a credit bureau, which spelled changes for license applications, he added.

Additionally, it is stated that the company which has submitted a request for a license to operate must pay an initial capital of K3 billion to the department in charge.

“Only the Central Bank can approve the registration permit for establishing a credit bureau. Furthermore, the review and examination of guidelines will also be done by them [Central Bank]. Currently, there’s a form submitted so that it [guideline reviews] is done by an organisation. We’re only at the reviewing and examining stage, so it would take about a month or two for the permission to be handled,” said Daw Khine Shwe War, deputy director general of Monetary Policy, Research and Statistics Department at Central Bank.

The association that has obtained a registration permit from the credit bureau must begin operations within one year, she explained.

“Therefore, they have to start their service within one year after they›ve obtained the registration permit. So, in the upcoming year, the credit bureau would have to be operational,” she added. 

The person in charge from the Central Bank did not indicate which Singaporean firm is going to cooperate with the Myanmar Banks Association. Contacts were not able to provide details. 

“Myanmar Banks Association is arranging to set up a credit bureau but now I have no authority to share any details because I›m taking a break from my duties as a result of my health conditions,” said U Yu Lwin, who served as vice chair of Myanmar Banks Association and chair of the Information Committee.

If a credit bureau emerges, it will serve as an association which gathers data about local companies and will also serve an accountability role to fulfil the needs of procuring loans for those companies.

“It will very convenient for banks and companies if a credit bureau exists. Banks can easily get the information of the companies [that borrow money] and they can lend money with minimum risk. The international community is doing this,” said U Than Lwin, former vice chair of Central Bank who is now senior adviser at KBZ bank. 

However, the organisation overseeing the bureau’s performance and accountability will need to be formed systematically and supervision has to be effective. 

“It is not easy. The main point is trust. How can we build trust in a credit bureau? How will the Central Bank monitor it? There are other factors which need to be considered such as the reliability of the bureau which will issue guarantees for loan withdrawals.

“There are cases that the same house-grant is put up as collateral at two different banks, and both house-grant agreements are authentic. So, who is so corrupted that there are two authentic house-grants for the same house? Can the credit bureau oversee such matters as well?” U Than Lwin went on.

According to an announcement issued by the World Bank and International Finance Corporation (IFC), the percentage of local companies in Myanmar which receive investment support from bank businesses is the lowest among the ASEAN countries.

As fewer investments are procured, the companies face difficulties in expanding and developing their businesses to compete with those in neighbouring countries, local businesses complained.

“It is very hard to compete with businesses in other countries due to the lower possibility to access investments.

However, it is risky for banks to give loans to companies. Thus, if there is an organisation that links both sides, it will be more convenient,” said entrepreneur U Nay Lin Zin.

In early February, a private bank official told The Myanmar Times that banks are taking collateral extensively because there is no way of measuring the creditworthiness of a borrower.

“Currently, the credit bureau has not been established,” the private bank official said. “I believe that is why the banks are taking collateral.”

According to information on loan regulations issued by the Central Bank, there is no limited duration for business licenses, and the license annulment will be processed as per the Central Bank’s regulations.

Likewise, the credit bureau need to specify the steps taken when there is an absence of information about the company during the license application process, the regulations stated.


 

Translation by Kyaw Soe Htet, Khine Thazin Han, and  Swe Zin Moe