Executive Summary of Monthly Financial Sector Discussions 06/2018

Executive Summary of Monthly Economic Development & Outlook Discussions

Tuesday, June 5th, 2018

Spirited exchange of ideas at this month’s Discussions can be attributed to the very thoughtful engagement guest Head of Regulatory Affairs Asia Pacific Region of a major international bank who shared her experiences of the global regulatory environment and advocacy activities throughout the region.  She is also currently participating in an international assistance program at the Yangon University of Economics to improve the Masters in Banking and Finance curriculum.

A brief overview of all the subject matters discussed.

1. Corporate Governance (focus on the Banking Sector)

The main emphasis of the Discussion on the current state of corporate governance in Myanmar from a banking sector perspective centered around five (5) draft Central Bank regulations that are currently pending formal announcements and if published will have the intended consequences of introducing international best practices for corporate governance into the Myanmar banking landscape.

Stakeholders were however quick to point that the current situation in Myanmar is that most banks along with the major businesses that have predominant ownership in Myanmar Banks are family owned enterprises, often with in-fighting amongst the board members, poor transparency and inadequate representation of shareholders.

The separation between management and ownership is mostly not observed, and members agreed that Myanmar companies could benefit from formalizing roles and responsibilities, strengthening oversight and adopting more effective procedures for Corporate Governance.

Banks have a fiduciary responsibility of preserving the public’s funds more rigorous principles are required to be enforced by the Central Bank of Myanmar. The consequences of not adhering to the fiduciary responsibilities and the lack of consequences for enforcement by the Central Bank of Myanmar continues to create friction between owners / managers and various stakeholders of the Banking system, deposit holders included. The outside observation is however, this is a classical evolution from a frontier market to an emerging professionally regulatory environment.

Discussions also centered around a framework for Corporate Governance that has been established in the Financial Institutions Law, the Draft regulations from the Central Bank suggests that banks will be required to disclose substantial interests of shareholders, conflicts of interest on the board of directors, duties and powers of the BOD, and related party lending. Conversations on tests for management level positions that may be introduced as a part of these Draft regulations drew some health skeptism on this same could be implemented in a country where the lack of capacity training and vocational opportunities seem to be the norm rather than the exception.

Members advised that the upcoming codes and guidelines for corporate governance should not be treated as a compliance exercise, but rather as a means to an end.  BOD’s don’t currently fulfil their role as principal decision making bodies.  Roles and responsibilities should be understood by all parties involved in the Risk Management Process, to include Boards, executives and operational staff.  Sound corporate governance would demand much needed investment in risk management systems which will in turn help build public confidence in individual banks and within the overall banking system.

2. Corporate Governance (Institutional developments and upcoming Regulations)

Some stakeholders have been involved in setting up The Myanmar Institute of Directors (MIoD), the first independent, private sector-led organization promoting best corporate governance standards and practices in the country. While still in its infancy, important first steps are being made to provide education to business owners and executives in Myanmar based on some of the prevalent international best practices for corporate governance.

In addition to the Financial Institutions Law and associated regulations, the new Myanmar Companies Law also references corporate governance principles. Taking effect in August 2018, local companies will be compelled to modernize their Boards and make other governance reforms.

There was some mention amongst stakeholders of Yangon Stock Exchange announcements that corporate governance and internal management systems will be required of publicly listed companies however that they have not yet been explained how they will observe or enforce these standards.

3. Banking Sector – Needs Assessment Survey

Additionally, a stakeholder shared the preliminary results of a Myanmar banking sector ‘needs assessment’ survey that was recently performed. The survey targeted three (3) levels of banking; employees-staff, middle management and C-Level.  The results showed a significant deviation from most emerging market and developed country banking norms i.e. that banking skills (like credit risk management and financial accounting) were not perceived as being the most important skill set for

bankers, rather English language and IT skills were perceived as far more important for advancement of careers within the banking sector in Myanmar.

The Discussions thereafter adjourned, with the next monthly Discussion date confirmed for Tuesday, July 3rd and Tuesday, August 07th, 2018 respectively.