Military lending to major banks as experts fear sector meltdown

Military lending to major banks as experts fear sector meltdown

Burma’s banking and financial crises have worsened since the military coup, despite the military pledging that it would prop up the sectors as private banks face collapse.

Zaw Min Tun, the Deputy Information Minister of the military regime, revealed at a recent press conference in Naypyidaw that the junta has provided aid to the country’s large financial institutions as many of Burma’s major banks are now at risk of going under.

Economic analysts point out that Burma’s banks faced a precarious situation before the coup and, that circumstances have only worsened since the military’s takeover last year.

By lending to banks, all of whom are permitted to Burma’s military-linked crony businessmen, the military will likely look to leverage its control over the country’s financial system, increasing its own ability to borrow and lend.

An independent analysis of the banking and financial sectors found that institutions had encountered serious issues related to liquidity and credit reclamation even before the coup, primarily due to non-payment on liberally provided bank account overdrafts and the granting of non-performing loans.

“The unfavorable state of Burmese banks has existed since the NLD government, but the previous administration had implemented plans to improve the banking system within two years. The NLD government had pointed out that big banks were failing to comply with industry rules and regulations set by the Central Bank; big banks frequently ignore these regulations. The precarious position of banks did not necessarily worsen under the NLD government, but has deteriorated significantly after the coup. The circumstances were already bad, but the military has made it worse,” he told DVB.

An economist said that the junta is increasingly interfering with banking regulations, tinkering without a plan while the banking crisis intensifies.

“It would be great if economic experts [and not soldiers] were in charge of business matters. The situation should be supervised by them in a professional manner. However, since the junta took over administration of the industry, things have gone wrong. The experts still working under them are afraid of them, afraid to express critical opinions. This fear makes them unable to speak out when things need to change,” he said.

Burma’s banking crisis has been exacerbated by a rush on the country’s institutions; citizens have, since the coup, attempted to empty accounts having lost faith in Burma’s financial system since the coup. In response, the military has imposed cripplingly low withdrawal limits on accounts (~USD$200-400 per day) in an attempt to retain liquidity.

A collapse in trade, Burma’s disconnection from the international Swift payment system, and a ban on foreign currency holdings has further destroyed banks’ credibility and access to capital.