Myanmar’s banking system has changed a lot over the last 10 years. It got mixed influences from history, it grew in different ways and faced problems from outside factors.
Myanmar’s banking history goes back to the 1800s when it was under British rule. Setting up the Burma Bank in 1895 started this industry. But it always had full control until the Indian Overseas Bank came into play in 1920 and changed things later. After the army coup in 1963, all private banks were nationalized by government order under the “Nationalization of Banking Business Ordinance No. 1 of 1963,” and consolidated into the Union of Burma Bank. This started a system where the government controls all financial services under Union of Burma Bank’s banner.
In the 1990s, private banking made a big comeback thanks to changes in economics rules. The Myanmar Citizens Bank, the first private bank started working in 1992. This was different from having only state-owned banks. But starting in the 2000s, a banking crisis began. It happened because some business trading firms that were acting like unofficial banks failed down. These companies provided financial services without being formally organized as such institutions themselves yet were doing things similar to how those organizations operate with true rules already set up at least officially speaking though they might still get away locally so long no one watches them.
The government’s control over banks at that time stopped competition and new ideas. This made it hard for businesses or people to get credit they needed. Myanmar’s bank industry was behind others in the region. It wasn’t until 2007 that they were able to fully recover from a big banking problem.
Figure 1: GDP contribution of the financial institutions sector in Myanmar from financial year 2010 to 2019
Source: Statista 2021
From 2011 to 2021, a big change happened for Myanmar’s banking industry. The government’s choice in 2011 to open this part lets them make changes, get revenues from other countries, and boost fast growth. Referring to figure 1, the banking sector in Myanmar made substantial contributions to the country’s economic development, primarily by enhancing financial inclusion and facilitating economic growth. This helped the economy grow steadily. The banking system was very important in this growth by improving financial access, especially for people living in rural areas.
The banking system setup in 2023 shows a wide variety of scenes. Starting from 2015, foreign banks were allowed to join. They help make the bank industry more varied. State-owned banks, semi-gov-banks, private ones, and foreign bank parts all work together. The four big private banks, Kanbawza Bank, Ayeyarwady Bank, Yoma Bank and Cooperative bank hold a strong position. They draw in lots of money from deposits and loans.
Table 1: The Structure of Banking System in Myanmar
Source: IMF Myanmar 2019
The institutions, supported by rules and laws, were key in forming how this area changed. In 2013, the central bank was set up on its own. This gave it more power and tasks to do like keeping prices steady and making sure the money system stays strong. Measures against money laundering, rules for financial reporting and letting other countries invest more helped make the control world stronger.
The unwritten rules, changed by political and economic policy reforms, improved technology use, and different buyer behavior helped formal work. For more than three decades, the official exchange rate in Myanmar was fixed at 8.50847 kyat per Special Drawing Right (SDR) of the International Monetary Fund (IMF) until April 2012. In 2012, they started using a floating exchange rate system. It let special banks join in daily currency sales each day. The growth of digital banking and mobile money services, helped by smartphone use, made it easier for more people to get involved in finance. This allowed them to make payments, save money and even borrow cash.
Figure 2: Institutions in details that influence the banking sector progress (2011-2021)
Source: Author’s complication
However, the bank industry had problems for the first time with COVID-19 pandemic and a political crisis in 2021. At first, the pandemic was well-managed with effective measures. But then trouble in service jobs hit our money system hard. The smart moves of the Central Bank kept money flowing, reducing possible dangers. However, the extension of time for following bank safety rules stopped some banking sector changes. This impacted banks that served customers really hurt by the pandemic.
The big changes after the February 2021 coup made things even harder. Long lines at ATMs, people being more careful with money and taking out large amounts made it harder for Myanmar’s currency to flow. This drives the country towards using cash mainly instead of digital payments. Cash withdrawal services came with extra fees. So, the Central Bank put in rules to watch over payments bigger than MMK20 million.
The effects of the coup were bad, making around 70% of bank money taken out from it. People not trusting local banks made gold prices go up a lot and the local money get less value compared to US dollars. Microfinance organizations had problems, with not-paying loan rates becoming very high. This put millions of people who borrowed money in danger.
Myanmar’s bank system, which grew and connected before, now has doubts happening after the Covid-19 health problem played out. It also had trouble with politics during that time. Getting political peace back is very important for bringing the sector to life again and keeping up with good progress done in last 10 years. Even though problems are still there, the strength and ability of banks will be very important in deciding Myanmar’s economic future.