Banking in Burma

New Frontiers, or the Same Old Barren Wasteland?

Sean Turnell


A country’s financial system provides its means of exchange and is the mechanism through which its resources are mobilised and allocated. The financial system is the arena in which economic risk can be managed, government debt can be financed, foreign capital can be accessed and managed, and it is the vehicle through which monetary policy can be implemented. According to Larry Summers, the former Secretary of the US Treasury, a country’s financial system provides the ‘wheels’ for its development.

Burma has not had a properly functioning financial system for four decades. The coup that installed the military dictatorship of General Ne Win in 1962 ushered in a program that, under the label of ‘the Burmese way to socialism’, installed some of the worst excesses of Stalinist economics. In 1963 the financial system was nationalised, and in 1969 all of the nationalised banks were merged into a collectivised institution that laboured under the name of ‘The Peoples’ Bank of the Union of Burma’. It shortened its name in 1972 to the Union of Burma Bank. In 1975 the monolith was broken up five ways: 1) the Union Bank of Burma was established as the central bank; 2) the Myanma Foreign Trade Bank was created as a monopoly to deal with all foreign exchange transactions; 3) the Myanma Economic Bank was formed as the primary deposit-taking and general banking institution; 4) the Myanma Agricultural Bank was formed to service agriculture; and 5) insurance services were allocated to a state monopoly, the Myanmar Insurance Corporation (Pierce 1997, p.441).

The coming to power in 1988 of the State Law and Order Restoration Council (SLORC), supposedly brought with it a change in the direction of Burma’s economic trajectory in which the free market was to be encouraged. To this end, SLORC passed a series of laws that were ostensibly about ‘liberalising’ the financial sector. These laws, the most important of which was the Financial Institutions of Myanmar Law and the Central Bank of Myanmar Law (both 1990), established the Central Bank of Myanmar (CBM) as the new central bank and gave it powers to supervise banks and to establish a program of reform. This program envisaged that liberalisation would proceed in three phases:

Phase 1: Allow domestic private banks and allow foreign banks to open representative offices.

Phase 2: Allow selected domestic banks to form joint ventures with foreign banks.

Phase 3: Allow foreign banks to begin operations in their own right.

No timetable was established for the program. By 1991, however, the first domestic private banks had been established and the first foreign bank representative offices had opened.

From this promising start financial sector reform in Burma, like reform in every other aspect of the nation’s political economy, has made very little headway. Though Phase 1 of the program was more or less successfully implemented in terms of its limited goals, phases 2 and 3 have yet to be embarked upon. Together with a great many other limitations to the operation of foreign investors in Burma (examined below), foreign banks remain restricted to a representative office role only. Four joint venture proposals along the lines envisaged in the Phase 2 reforms have apparently been mooted, but only one proceeded to the point that the Central Bank of Myanmar’s approval was sought. This approval was not given (Pierce 1997, p.445).

The Current Structure of Burma’s Banking Sector

In terms of branch networks and access for the great majority of the Burmese people, Burma’s banking sector continues to be dominated by state-owned institutions. All four of the state-owned banks that were the successors to the monolithic People’s Bank survive. To these have been added the Myanma Investment and Commercial Bank (MICB) in 1989 and the Myanma Small Loans Enterprise (MSLE) in 1993. Both the MICB and the MSLE were carved out of the Myanma Economic Bank (MEB), the MICB to provide corporate and investment banking services and the MSLE to act as a type of state-owned pawn shop.

The four continuing state-owned banks more or less continue their established roles, though the Myanma Foreign Trade Bank has lost its foreign exchange monopoly. The MEB continues to be by far the largest banking operation in Burma in terms of branches, with around 300 throughout the country. In 1997, according to Pierce (1997, p.443), the MEB held over 75 percent of total deposits for all banks, or around 7 times the deposits of all the (then) private banks put together. As shall be examined below, this is not likely to be the case today. Burma’s military regime has not released data on the performance of the state-owned banks for some time, but there appears to be little doubt that their ‘market share’ has been greatly eroded by the new private banks. This is likely to be especially true amongst what might rather loosely be described as the business community in Burma, the only people with sufficient funds to be of interest to the private banks. Even at the height of the MEB’s dominance in 1997, however, its deposit base of 70 billion Kyat would amount, at the current market value of the Kyat, to around $US 100 million – about the size, in short, of a small regional bank in the US.

There are currently 20 private domestic banks operating in Burma (full list in Appendix 1). These have grown dramatically in recent years. Pierce (1997, p.443) reported that deposits with the private banks in March 1995 totalled 5.9 billion Kyats. As at November 2000, deposits with Burma’s banking system as a whole totalled 450.7 billion Kyat. Burma’s monetary authorities do not reveal the respective shares of state and private banks but one private bank alone, the Asia Wealth Bank, claims deposits of 144.9 billion Kyat. Most of the 20 private banks are exceedingly small institutions, however, and apart from the Asia Wealth Bank, four others – Myanmar May Flower Bank, Yoma Bank, Kanbawza Bank and Myawaddy Bank – appear to dominate. As shall be revealed later in this study, the apparent dramatic growth of the private banking sector in Burma masks a less than attractive reality.

As at September 2001 there were 46 representative offices of foreign banks in Burma (full list in Appendix 1). This number is subject to some volatility, and since 1991 quite a number of foreign banks have established representative offices, only to close them again when it became apparent that the promise of banking in Burma was not matched by the reality. Representative offices are not permitted to engage in any banking business beyond liaison activities and the monitoring of loans made offshore. As noted above, no foreign bank that has established a representative office in Burma has yet to form a joint-venture bank, or been permitted to establish banking operations in its own right.

The state-owned Myanmar Insurance Corporation remains the only entity that is allowed to engage in insurance business in Burma. Though rumours have suggested from time to time that this monopoly might be ended, no alternatives have emerged as yet.

A Functioning Banking System in Burma?

What appears to have been rapid growth in Burma’s private banking sector in recent years disguises a financial system that, in fact, is barely functioning.

The evidence for this can be found by examining the data that Burma supplies to the IMF – the only recent data available since the military regime stopped publication of Burma’s national accounts in 1998. Using this data, derived primarily from the IMF’s Monetary and Financial Statistics series (as at November 2000), the following facts become apparent:

Burma’s banks are not fulfilling the normal role of banks in creating credit, but the country’s abnormally high cash-to-deposits ratio is also indicative that; a) they are not trusted by the broad populace; and/or b) the returns on savings that they offer (as noted below, far less than inflation) are not sufficient to attract deposits. Either way, the ratio is indicative of a system that is scarcely functioning.

Of course, to some extent the issue of Burma’s excess of cash reflects the broader problem that the regime funds much of its spending through the simple, but highly destructive, means of printing the Kyat in whatever volumes it requires. From 1995 to 2000, currency circulating outside banks in Burma increased by 306 percent. In Thailand the relevant increase over this period (a period which included the Asian financial crisis) was 30 percent.

Supporting statistical analyses that suggest Burma’s banking system is dysfunctional are the host of commentaries, news items and other immediate sources of information that leak out of Burma and appear on various websites, in newspapers, and so on. For an interesting first hand account of Burma’s banking system from objective external observer, however, see the account of Professor Lynne Doti at Professor Doti was in Burma in June 2001 as a lecturer and specialist in banking and democracy oon behalf of the US State Department.

Regulatory Constraints

The absence of a properly functioning banking and financial system in Burma is just one example of a failed political economy in which questions of resource allocation are decided by military fiat rather then through the signals of the market. This broader institutional failure in Burma is manifested in many ways that impact upon banking and finance, but not least in the way that arbitrary and often contradictory regulation inhibits the development of the sector. In the following section, some of these contradictions are examined, highlighting in particular those that render Burma a most unattractive destination for overseas financial sector investment.

Prudential Regulation

At first glance the regulation of banks in Burma appears rational and consistent with international norms. The CBM applies, for example, the criteria of the Basle Capital Adequacy Accord for banks. The Basle Accord, formulated in 1988, established the benchmark for international best practice in prudential regulation. It prescribed that banks maintain a minimum ratio of capital to risk-adjusted assets (8 percent), set risk-weighting categories of various asset types (ranging from zero to 100 percent, depending on the credit risk of the borrower), and outlined limits to credit exposures to any one borrower. To all of these the CBM adheres. Under Article 31 of the Financial Institutions of Myanmar Law, the CBM dictates that banks maintain a capital adequacy ratio of 10 percent (higher that the Basle benchmark of 8 percent, but not inappropriate for a country with an undeveloped financial system), whilst under Article 32 of the Law banks are not allowed to lend in excess of 20 percent of their capital to any single individual or enterprise. The CBM also applies, in a rough and ready way, the same risk weighting categories determined under the Basle framework.

So far so good, but on top of the Basle criteria the CBM imposes other regulations on banks that tip the balance of its approach from standard international practice – and into methodologies that can only be described as eccentric. These regulations are derived from what the regime refers to as the ‘pre-reform’ period, and are to modern eyes redundant and self-defeating procedures of an earlier age. Thus, for example, the CBM maintains minimum reserve requirements on banks (10 percent of demand deposits and 5 percent of time deposits – 75 percent of which must be deposited with the CBM, 25 percent to be maintained in cash), retains powers to issue ‘directives’ on lending to certain sectors of the economy, compels banks to maintain a liquidity ratio (liquid assets against liabilities) of 20 percent, and requires that banks set aside 25 percent of annual net profit up to the point in which a ‘general reserve’ is established equal to a bank’s capital. Of course, similar regulations were imposed by many countries post-World War Two, but these were what the Basle framework was meant to replace rather than augment.

In addition to these remnants of obsolete prudential regulations are laws, deriving from ancient concerns regarding usury and the domination of lending by certain ethnic groups in Burma, that restrict lending by banks in other ways. Uppermost of these is the Money Lenders Act (1945, but still in place) that not only disallows compound interest, but prohibits total interest payments from exceeding the amount of principal of a loan. As with so much else, it is difficult to imagine a modern banking system functioning against such fundamental prohibitions.

The CBM also continues to cap interest rates in Burma. On the deposit side, minimum interest rates payable on savings and time deposits must not be less than 3 percent below the Central Bank rate, while maximum interest rates chargeable on loans must not be more than 6 percent above the Central Bank rate. These restrictions yield a current deposit rate of 9.5 percent, and a lending rate of 15 percent. The absurdity of these limits, and what they must imply for the proper functioning of the banks, is readily apparent when one reflects upon the fact that inflation in Burma has not (truly) been below 20 percent a year for a decade.

Joint Venture Regulations

As noted above, Burma’s much vaunted Phase 1 reforms that allow for the establishment of foreign/Burmese joint venture banks has been a great failure. Restrictions such as those noted above (and the foreign exchange problems noted below) are sufficient in themselves to suggest that there is not likely to be a rush any time soon to set up legitimate joint venture banks in Burma. Specific regulations pertaining to joint ventures, however, have also almost certainly played a role in the non-appearance of these institutions.

As the current laws stand (and those relevant to joint venture banks source authority from the Foreign Investment Law and the Myanmar Citizens Investment Law (1994), as well as the Financial Institutions Law, a joint venture bank must be capitalised at a minimum of 60 million Kyat. The joint venture can only be established between a foreign bank that has a representative office in Burma, and a domestic private bank. The foreign bank must have at least a 35 percent equity in the joint venture to be paid, in Kyat, at the official exchange rate. The official exchange rate presently stands at around 6.7 Kyat to $US 1. The domestic partner can contribute its share in domestically sourced Kyat. The extortion is not hard to see. At the time of writing the market exchange rate is around 900 Kyat/$US 1. Even accepting that the current exchange rate represents an overselling of the Kyat, and selecting therefore an exchange rate of around 700 Kyat/$US 1 (a rate to which the Kyat has settled, off and on, over the last year or so), the joint venture requirements suggest that a foreign partner will over-pay relative to the domestic partner at a rate of over 100 to 1. At a minimum the foreign bank must contribute $US 3.1 million. Yet, if the minimum amount of capital to establish a joint-venture bank is employed, the domestic partner could (theoretically?) contribute zero - for a 75 percent equity share!

It’s hard to imagine that given such an outcome, and if a joint-venture in normal banking business is really what is on offer, that Burma’s banking sector could hope to attract foreign capital.

Exchange Controls

Burma’s foreign exchange problems, and especially the dual exchange rate regime that separates the official and market exchange rates, have been very damaging to Burma’s economic development. Creating opportunities for great corruption, the gulf that separates the official and market exchange rates distorts prices throughout the economy and undermines the functioning of markets. The precipitous fall of the Kyat, to a level that at the present time means that it is near worthless, makes doing business in Burma a most difficult proposition for foreign investors. In July 2001, in a characteristic effort to stem the fall of the Kyat, Burma’s military regime withdrew the licences of all but six of the private banks to deal in foreign exchange.

In addition to these very real and very large difficulties, however, are various exchange controls that inhibit still further the development of an outward-looking financial sector in Burma. Burma’s military regime continues to outlaw the conversion of Kyat into foreign currency. This means that the repatriation of profits from Kyat denominated income is difficult. The creation of a parallel currency in the form of Foreign Exchange Certificates (FECs) in 1993 alleviates one aspect of this difficulty (conversion into foreign currency), but permission is still required before any repatriation can take place. Even with approval, repatriation in any one year cannot exceed profits for that year. Of course, given that the Kyat is not convertible, no formal market exists for the currency and, as a consequence, legal hedging against its volatile fluctuations is not possible.

An especially egregious restriction on foreigners in Burma comes via the Transfer of Immovable Property (Restrictions) Law, 1987. Under this law, no foreign individual or foreign owned company is permitted to acquire land in Burma, or even lease land for a term exceeding one year unless specifically authorised by the military regime. Of course, this would greatly inhibit the ability of foreign banks (and joint ventures) to lend since they would be unable to seek property collateral against loans.

The Shadow of Money Laundering

Burma vies with Afghanistan for the title of the world’s largest producer and exporter of opium and heroin. Currently accounting for 20 percent of global production of these narcotics, lately this most productive and innovative sector of Burma’s economy has diversified into the production of methamphetamines (for which it is now the largest supplier in Southeast Asia).

The laundering of the substantial amounts of money that flow into Burma from the drug trade is itself a substantial industry in the country. According to the US State Department, in its latest annual report of the global narcotics trade:

There is reason to believe that money laundering in Burma and the return of narcotics profits laundered elsewhere are significant factors in the overall Burmese economy, although the extent is difficult to measure accurately. Political and economic constraints on legal capital inflows magnify the importance of narcotics-derived funds in the economy. An under-regulated banking system and ineffective money laundering legislation have created a business and investment environment conducive to the use of drug-related proceeds in legitimate commerce (US Department of State 2000).
The State Department’s assessment is shared by other international agencies. In June 2001 the OECD’s Financial Action Task Force on Money Laundering (FATF), identified Burma as a ‘non-cooperative state’ in the fight against money laundering. Specifically with respect to Burma, the FATF found that: It lacks a basic set of anti-money laundering provisions…There are no anti-money laundering provisions in the Central Bank Regulations for financial institutions. Other serious deficiencies concern the absence of a legal requirement to maintain records and to report suspicious or unusual transactions. There are also significant obstacles to international co-operation by judicial authorities (OECD 2001).
An inescapable answer (perhaps the only answer) to the great question of banking in Burma – how is it that the private banks have grown so rapidly in a moribund economy in which banks and their customers must lose money through inflation and irrational government policy – is that money laundering is not so much simply a feature of banking in Burma, it is banking in Burma.

As the US State Department noted above, proving the extent of money laundering in Burma’s banking system is difficult. Nevertheless there are sufficient enough reports from enough disparate sources, and over enough time, to lend credibility to the idea that it is rampant. Most of the private banks already mentioned in this study are implicated in various degrees in the drugs trade. Accusations to this end are outlined in Appendix Two.


The foundations of a proper functioning financial system are transparency, accountability, governance and the effective transmission of market signals. Burma’s financial system possesses few of these virtues. Burma’s banks do not fulfil the role allotted to such institutions in allocating resources in ways beyond the whims of the military. Worse, they may be little more than facades for the activity of criminals and a narco-state. Unfortunately the history of financial sector reform in Burma does not lend optimism to the hope that this might change without more fundamental changes in the country. Like so much else in Burma, the emergence of a viable banking system must await the political reform that is so long overdue.

APPENDIX 1: Non-State Banks in Burma

Private Domestic Banks in Burma

·Asia Wealth Bank

·Asian Yangon International Bank

·C.B. Bank

·Cooperative Farmers Bank

·First Private Bank

·Innwa Bank

·Kanbawza Bank

·Myanma Citizens Bank

·Myanmar Industrial Development Bank

·Myanmar Livestock Breeding & Fisheries Development Bank

·Myanmar May Flower Bank

·Myanmar Oriental Bank

·Myanmar Securities Exchange Centre

·Myanmar Universal Bank

·Myawaddy Bank

·Oriental Leasing Company

·Sibin Tharyar Bank

·Tun Foundation Bank

·Yangon City Bank

·Yoma Bank

Representative Offices of Foreign Banks


*Arab Bangladesh Bank

*Bank Dagang Nasional Indonesia

*Bank of Commerce (Malayasia)

*Banque Française du Commerce Exterieur

*Banque Nationale de Paris

*Deutsche Bank Aktiengeselischaft

*First Overseas Bank Limited

*Global Commercial Bank

*Hongkong and Shanghai Banking Corp.

*ING Bank

*Keppel Bank of Singapore

*Korea Exchange Bank

*Malayan Banking Berhad

*National Bank

*Overseas Union Bank

*Public Bank Berhad

*Societe Generale

*Standard Chartered Bank

*Asahi Bank

*Bank of Tokyo-Mitsubishi

*Dai-Ichi Kangyo Bank

*Development Bank of Singapore

*Fuji Bank

*Sakura Bank

*Sanwa Bank

*Sumitomo Bank

*Tokai Bank

*United Overseas Bank

Appendix Two: Burma’s Private Banks and Accusations of Money Laundering

The Asia Wealth Bank, the largest in Burma, was founded by U Eike Htun, a shadowy figure who emerged in the early 1990s from Kokang, ‘an area notorious for opium production’ (Maung Maung Oo 2001a). Eike Htun also heads a leading trading and property business called the Olympic Group that has been very active in investing large sums in residential property and hotel developments in Rangoon. Most of these stand empty. The Asia Wealth Bank reports a return on equity of 54.56 percent for 2000-2001 – substantial profits for a bank whose funds are tied up in assets in which the returns (as noted above) are less than half the rate of inflation. The Asia Wealth Bank does much of its business along the Chinese border, a prime transit point through which drugs from Burma go out into the world. It is particularly popular amongst ethnic Chinese business in Burma generally. Protests were staged in Thailand in May 2000 when Eike Htun was invited to attend an Asian Development Bank conference in Chiang Mai.

The Mynamar May Flower Bank, often listed as the third biggest in Burma, was founded by U Kya Win. Kya Win is accused of being a leading figure in the drugs trade in Burma. He was an associate of Khun Sa, Burma’s former leading ‘drug lord’ who ‘surrendered’ to Burma’s military regime in 1996 (Maung Maung Oo, 2001a). In 2000 Kya Win sold an 80 percent stake in the bank to the United Wa State Army (UWSA). The UWSA’s role in the drug trade is well known, of course and it has been described by the US State Department as the ‘world’s largest armed narcotics-trafficking organisation’.

Kanbawza Bank has grown extremely rapidly in recent years. Established by U Aung Ko Win in Shan State (in an area also noted for opium production), the bank is famed for its largesse in many areas, not least for its sponsorship of Burma’s national football team. According to Maung Maung Oo (2001a), Aung Ko Win is believed by business people in Burma to be ‘the adopted son of [junta Vice-Chairman] General Maung Aye and that he is laundering the corrupt money of the generals through his bank’.

Myawaddy Bank is owned by Union of Myanmar Economic Holdings (UMEH). UMEH, Burma’s largest firm, is to all intents and purposes Burma’s army itself. Formed in February 1990, UMEH is 40% owned by the Defence Ministry’s Directorate of Defence Procurement and the remaining 60% by ‘defence services personnel’. The latter are mostly senior officers, including members of the State Peace and Development Council (since 1997, the more acronym-friendly name of the SLORC), current serving members of military regiments and army veterans (individuals and organisations). UMEH has its fingers in all manner of pies and enjoys great privilages (including exemption from profit taxes). UMEH runs monopoly subsidiaries in industries that range from tourism, mining, trading to textiles. As was reported in the last issue of BEW, it often gets ‘first pick’ of joint-venture projects and partners. Myawaddy Bank is located in the old Central Bank of Myanmar Building, a demonstration of its establishment status. According to Kyee-Mohn U Thaung, ‘when Myawaddy Bank opened on January 4 1991, they declared that there would be no questioning of the depositors…’.

Myanmar Universal Bank has been implicated not only in the laundering of drugs money, but in the financing of amphetamine factories in Burma. The Bank is believed to be owned by Wei Hsueh-Gang, described by the South China Morning Post as Burma’s ‘premier trafficker’. Wei is from Shan State and has been indicted on drugs charges in both the United States and Thailand (Barnes 2001).

Of course, the above account of some of the allegations regarding the largest banks in Burma is by no means definitive. But, with similar accusations being levelled at most of the other (smaller) private banks, it is indicative that there is truly ‘something rotten’ at the core of Burma’s banking sector.


Barnes, W. 2001, ‘Bank guests ‘close to junta, drug lords’, South China Morning Post, 17 May 2001.

Brookings Institution (1998), Financial Markets and Development, July 1998,

IMF 2001, International Monetary and Financial Statistics, May 2001, Washington D.C., IMF.

Maung Maung Oo (2001a), ‘Above it all’, The Irrawaddy, February, vol.9, no.2,

Maung Maung Oo (2001b), ‘Burma’s currency woes continue’, The Irrawaddy, July,

OECD, Financial Action Task Force on Money Laundering (2001), Review to Identify Non-Cooperative Countries or Territories, Paris, OECD.

Pierce, J.L. 1997, ‘Developments in Myanmar: New frontiers for banking’, Journal of International Banking Law, vol.12, no.11, November, pp.441-445.

US Department of State (2000), Narcotics Control Report 2000,