Slow progress in Myanmar’s banking sector-

Banking in Myanmar is not easy. Being a cash-based economy, banks are not nearly as involved in commercial transactions as in most other countries. Until recently, credit cards were not commonly accepted, and even now, they are accepted only in larger or more internationally oriented businesses. In 2013, automated teller machines (ATMs) arrived and, as a result, visitors do not have to bring in large sums of cash for expected expenses. When you do, however, want to exchange foreign currency, it still better be crisp dollar bills or forget about changing them into the Myanmar kyat!

Transfer of money into Myanmar: Logistical considerations

For many years, international transactions requiring bank money transfers were almost impossible. This was, in part, due to the sanctions imposed by the US, the European Union, Canada and others, which prevented international foreign banks from conducting business with Myanmar banks. For the most part these sanctions have now been removed or loosened. The US has removed five Myanmar banks (Asia Green Development Bank, Ayeyarwady Bank, Myanmar Economic Bank, Myanmar Foreign Trade Bank and Myanmar Investment and Commercial Bank) from the Treasury Department’s Specially Designated Nations’ (SDN) list. US banks (and those with connections to the US, thus mostly all international banks) can now conduct business with these five Myanmar banks.

Although most sanctions have been removed, most large international foreign banks are still not, for example, wiring funds into Myanmar, although some regional banks have been doing so. For the large international banks the issue may be that this new open legal environment is untested, at least in relation to their internal compliance guidelines. That said, it is a common belief that wiring funds into Myanmar will become easier in the near future. In 2015, Myanmar granted nine foreign banks licences to conduct commercial lending in foreign currencies. However, these licences do not extend to local currency lending.

Transfer of money into Myanmar: Legal considerations

As do many countries in the region and/or those that are in relatively early stages of economic development, Myanmar prefers foreign investment in which a foreign company comes to Myanmar with funds and expertise and opens a business that creates value, such as creating quality employment and infrastructure. As a result, the general rule for foreign investors in Myanmar is that foreign companies must operate through an entity registered in Myanmar (which may be 100 per cent foreign owned, a joint venture or a branch). This rule generally applies to any business operating in any sector, regardless of whether a company is formed under the new Foreign Investment Law (FIL) of November 2, 2012 or the Myanmar Companies Act of April 1, 1914.

After the issue of a conditional copy of the Myanmar Investment Commission (MIC) permit (for a foreign entity investing under the FIL) and the temporary “permit to trade” (for a foreign entity investing under the FIL and the Companies Act), the foreign investor must bring into Myanmar 50 per cent of the minimum capital for such company’s formation (often referred to as “bring in capital”). To accomplish the transfer, foreign investors have to wire funds to a bank in Myanmar. This process also documents the transfer to satisfy the registered capital requirement. The second half of the bringing in of the registered capital must be accomplished within five years. This is important for later repatriation upon liquidation of the investment as funds brought into Myanmar that are either not a part of the “bring in” capital procedure and/or have not received prior approval from the Central Bank of the Union of Myanmar (CBM) will not receive CBM approval to be wired back out of the country (see below for repatriation details).

Foreign investors are permitted to open a bank account denominated in a foreign currency or in Myanmar kyat through any bank that is authorised to perform international banking. Note that American companies should open an account with one of the five banks that have been removed from the SDN list. For each deposit of funds, the foreign investor must submit appropriate documentation to the CBM for review and approval. With respect to MIC companies, the MIC will also have to approve the deposit pursuant to the FIL.

Repatriation of funds

The FIL and the Foreign Exchange Management Law (FEML) enable foreign investors to remit imported capital and net profit (dividends) abroad in a foreign currency as long as the remittances are made through a bank authorised by the Myanmar government to do international banking at the prescribed rate of exchange.

The FEML replaced an earlier, stricter law that required the CBM to provide approval for every foreign currency payment out of the country. The FEML is intended, among other things, to liberalise transfer payments by breaking various transfers into two categories – those that no longer require pre-approval by the CBM (current account transactions) and those that still do (capital account transactions).

However, the FEML Rules include procedures for foreign currency remittances and transactions, particularly documentary

evidence requirements for accepting or remitting foreign exchange. Under the rules, transactions that technically appear to no longer require CBM approval still need to do so.

Another consideration for foreign investors is CBM Directive No. 13/2012 which imposes a cap of $10,000 on the amount that may be drawn from current accounts, further restricted to no more than twice a week.

Current account transactions include the following:

  • Remittances for trading, service fees, settlement of short-term bank loans
  • Remittances for payment of interest on loans and net income from investments
  • Instalment loan payments or depreciation on direct investments and
  • Inbound or outbound remittances for family living costs

The capital account transactions category provides that foreign currency may be retransferred abroad only after receiving approval from the CBM. The FEML defines capital account transactions as account transactions other than the current account transactions. A repayment of principal for

a loan permitted by the Union Government, a grant given to a foreign country permitted by the Union Government, and an investment made abroad permitted by the Union Government are considered to be capital account transactions. As mentioned above, in practice, pre-CBM approval appears to still be required for some of these transactions.

The environment for conducting transactions in Myanmar remains less than ideal. However, progress has been made and it is likely that as sanctions are increasingly relaxed and practice catches up with investment needs, more modern banking services will start to be offered. n

William D. Greenlee, Jr. is partner,managing director, Myanmar ,at DFDL. Greenlee’s practice focuses on mergers and acquisitions, project finance and securities. He is involved in negotiating, structuring, documenting and managing large private equity and opportunity-fund companies and transactions. He holds a BA degree in Asian Studies  from the University of Oregon with a minor in East Asian Literature and Juris Doctor from the University of San Francisco, California. Greenlee is a member of the State Bar of California, State Bar of Nevada, State Bar of California International Law Section and the Inter-Pacific Bar Association. He is based in our Yangon office and is head of DFDL’s China Desk.