Formosan Brothers Law -2020.07.06

Terry Tu, Senior Consultant at Formosan Brothers, Attorneys-at-Law, New York Attorney & CAMS

Nishant Choudhary, Partner, Deputy Managing Director at DFDL Myanmar, Myanmar Banking Sector

The Taiwan government has developed its New Southbound Policy and enhanced its economic and trade layout in the Asia Pacific. Due to the impact caused by COVID-19 pandemic, supply chain or investment has gradually moved to Southeast Asian countries. Moreover, with respect to the business opportunities brought by the vast domestic demand from the new middle class formed by the economic growth in the ASEAN and South Asia countries, more and more Taiwanese and foreign enterprises are eager to boost the need for financial and banking services brought by the businesses stationed locally. Among the ASEAN countries, Myanmar is one of those that has attracted many foreign investors.

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The financial market in Myanmar has yet saturated

The economic growth of Myanmar surpassed 6.5% in each of the past three years. Even under the impact of the pandemic, according to the economic forecast in April by the Asian Development Bank, Myanmar still maintained a 4.2% GDP growth rate and is one of the few countries that maintained a positive growth rate. Myanmar is a new market awaiting development. Over half of its roughly 54 million population have not received proper banking services. In the past few years, inbound M&A activities have grown steadily in Myanmar, and the scale and scope of companies incorporated in Myanmar have expanded. They have turned to seek assistance from foreign banks that have rich experience and are professional in helping businesses raise funds. Currently, in Myanmar, the demand for financial services is greater than the supply of it.  

In fact, the Myanmar government has taken considerable steps in liberalizing its banking services market. Since January 2019, the Central Bank of Myanmar (“CBM”) has permitted foreign banks to hold up to 35% shareholding of local banks. In January 2020, it announced that foreign ownership in existing local banks may be permitted to exceed this 35% threshold on a case-by-case basis. In addition, in regard to the approval of licenses for foreign banks, the first and second phases were completed in 2014 and 2016 respectively, through which banking licenses were awarded to a number of foreign banks to open branch offices and subsidiaries. Foreign banks qualifying for a branch license are required to have a paid-in capital of at least US$75 million, and these banks may only conduct corporate banking, not retail banking. For subsidiaries, the paid-in capital needs to be at least US$100 million, and in addition to corporate banking, they may also conduct retail banking starting January 1, 2021. On November 7, 2019, the CBM issued an announcement, initiating a third phase of foreign banking licenses. Four Taiwanese banks applied, among which, Cathay United Bank and Mega Bank successfully obtained branch office licenses.

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Preparation Work after Obtaining Banking Licenses in Myanmar

According to the requirements of the CBM, a bank shall complete preparation work within nine months of obtaining a branch license. We recommend starting with the following tasks:

● Localization of bank forms and product documents to comply with local laws and regulations;

● Creation of internal legal compliance rules to encompass banking-related regulations by the Myanmar Financial Institutions Supervision Department and internal laws such as the Foreign Corrupt Practices Act of the U.S. and the Bribery Act of the U.K. Such compliance would include adherence to code of ethics, anti-money laundering, anti-bribery & corruption, gifts & entertainment, privacy and confidentiality, tax-related matters, and common requirements under corporate laws.

● Signing employment contracts with employees hired in Myanmar

● Trainings of employees. The content of the training shall focus on anti-money laundering, risk assessment, know your client (KYC), monitoring and reporting of suspicious activities, and record keeping, etc.

● Signing lease agreements for business premises

● Tax registration with relevant tax authority and complete commercial tax ("CT”) registration 30 days before the opening of commercial operations for initial registration, and renew the CT registration yearly 30 days before the end of the financial year.

● The bank will be required to register its employees with the township social security office within 30 days from the commencement date of the business and make statutory contributions to the social security fund each month (monthly contribution of3% from employer and monthly contribution of 2% from employee).

● Assisting foreign employees with the obtaining of business visa (validity for 70 days). For those who will reside in Myanmar for an extended duration, they must apply for a longer stay and multiple-entry visa. A Foreigners Registration Certificate shall be obtained by foreign nationals who wish to reside and work in Myanmar continuously for more than 90 days.

● Filing corporate secretarial documents as required under the company laws of Myanmar.

Since the financial market in Myanmar has yet saturated, it is awaiting for foreign banks to enter in who are ready to pioneer in the local market. However, even with the maturing of the Myanmar legislative framework, one must still evaluate their risks carefully. It is best to seek advice from financial and legal experts who are familiar with the local banking regulations and the environment.

(This article was published in the Expert's Commentary Column of the Commercial Times.   URL: https://view.ctee.com.tw/monetary/21017.html )

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