2019 30 April

Article by Nishant Choudhary and Bhawna Bakshi on Foreign Participation in Myanmar Banking Sector Featured in IBA Publication


ABSTRACT: Any reform aiming to increase foreign investment in a country can only be accomplished when there is uniformity between the legal provisions and the practices followed by the regulatory authorities. Adherence to legacy legislation and erroneous interpretation of the new laws would erode the objective of the reforms, leading Myanmar off the path toward greater development and progress.

KEYWORDS: Myanmar; Central Bank; financial institutions; joint ventures; foreign investments.



With the doors of the banking industry remaining shut to foreign investment with no clear directions until last year, the Central Bank of Myanmar (the “CBM”), by way of a letter issued on 19 January 2019 (the “CBM Notice”), permitted local banks and financial institutions to enter into joint ventures with foreign banks and institutions. The CBM notice now allows foreign banks or institutions to hold up to 35% equity in private local banks or financial institutions.

The CBM Notice was issued in light of the enforcement of the Myanmar Companies Law 2017 (the “MCL”), on 1 August 2018, which permitted foreign companies to hold up to 35% in a Myanmar company before such a company being deemed a ‘foreign company’ under the MCL. The MCL thus defines a foreign company as “a company incorporated in Myanmar in which an overseas corporation or other foreign person (or a combination of both) directly or indirectly owns or controls an ownership interest of more than 35%.”

The CBM Notice does not elaborate further, but states that local banks or financial institutions must submit a copy of the agreement to be entered into with the foreign bank partner or relevant financial institution to the CBM for approval. The copy of such an agreement (the “Agreement”) must be accompanied with documentary evidence of the shareholding ratio details between the local and foreign bank/ financial institution following the investment.  The CBM may request further documents depending on the submitted application.

The CBM Notice authorizes foreign banks with or without branches or representative offices in Myanmar to enter into joint ventures with local private banks. It further states that if local banks intend to carry out equity investment with foreign banks authorized to conduct banking activities in Myanmar, the requirements under Section 61 of the Financial Institutions Law (the “FIL”) must be adhered to.

The FIL is the principal law regulating financial institutions in Myanmar, and stipulates that the CBM’s prior approval is mandatory where a licensed bank operating in Myanmar intends to:

  1. acquire the business or a substantial part of the business of another bank or to sell all or a substantial part of its business;
  2. amalgamate or merge its business with another bank; and
  3. enter into transactions resulting in changes to the control of its business or its holding company.

It is important to note that prior CBM approval is a prerequisite where a foreign bank intends to acquire all or a substantial portion of the business of the licensed bank operating in Myanmar or enters into a transaction to sell all or a substantial part of its business to a bank in Myanmar.[1]

The FIL defines “substantial interest” as “owning, directly or indirectly at least ten (10) per cent capital or voting rights of a financial institution, or directly or indirectly exercising control over the management of the financial institution.

Section 61 of the FIL refers to cross shareholding, where a bank may acquire or hold shares:

  1. in another bank, up to a value of 5% of the unimpaired capital funds of the other bank; and
  2. in any company or enterprise carrying on Non-Bank Financial Institution (the “NBFI”) business, up to 5% of the unimpaired capital funds of such a company or enterprise.

Where a bank is in violation of the abovementioned provisions, the CBM may:

  1. prohibit such a bank from increasing any amount of shares in that company or enterprise; and
  2. instruct such a bank to decrease its level of shareholding in that company or enterprise to a specified limit.

However, only local Myanmar banks are required to comply with Section 61 of the FIL and it is not applicable to foreign bank and their branches.[2]

Foreign collaboration in the banking sector is sorely needed at this time as Myanmar local banks currently lack the capacity and resources to compete in foreign markets on a fair footing. Such investment would give rise to new technology and financial services, which in turn would bolster and enhance knowledge and efficiency of Myanmar banking sector.

The MCL further elaborates that it will not affect the provisions of the Transfer of Immovable Property Restrictions Law 1987 (the “TIPRA”). Despite enforcing various pro-investment laws that protect foreign investor interests, the regulatory authorities have always used the provisions of TIPRA as their ‘mailed fist’ against foreign investors in relation to use of or title to immovable property in Myanmar. As a general principle, a foreign national or foreign owned company is not entitled to acquire immovable property (land, benefits from the land, buildings and things constructed or situated on this land, including items installed on those buildings) in Myanmar. The restriction further extends to leasing immovable property, where a foreign national or a foreign owned company can only obtain a lease of immovable property up to one year. The term “foreign-owned company” as defined under the TIPRA refers to a company or an organization whose administration and control is vested in the hands of foreign citizens or where the majority of shares or interest are held by foreign shareholders.[3] This aligns with the definition of a foreign company under the MCL and therefore, the restriction on ownership of property by foreign companies as mentioned under TIPRA should not apply. However, since the MCL explicitly delimits its reach from extending over TIPRA, and as a legacy matter, the regulatory authorities follow an erroneous interpretation of the provisions, where they consider a company to be a foreign company with merely a single foreign shareholder. This interpretation has its roots, albeit remotely, in the Myanmar Companies Act of 1914 which considered a company to be foreign even with a single foreign individual or corporate shareholder. 

Additionally, the new Registration Law of 2018 (the “Registration Law”) needs to be closely contemplated by any foreign investor when considering a new venture in Myanmar. The registration Law does not provide any priority to equitable mortgages by possession of the title deeds, as opposed to the repealed Registration Act of 1909, where equitable mortgages by deposit of title deeds were granted priority, whether or not they are in writing or registered. Therefore, equitable mortgages by the deposit of title deeds are not compulsorily registrable under the Registration Law and do not enjoy any priority over subsequently registered mortgages. Accordingly, to perfect security in such cases involving equitable mortgage, the lenders would be required to reduce the relevant mortgages to writing and then register them under the law to preserve their priority against any subsequently registered mortgages. However, when a company has foreign shareholding, the Office of Registration of Deeds (the “ORD”) in Myanmar as a policy of denying to register the relevant documents. As a consequence, securities are usually not perfected as required under the law. A regional development bank is working with the Ministry of Agriculture, Livestock and Irrigation to facilitate comprehensive reform in the sector and this process is well underway.

Time and again these impediments have been raised and discussed with the regulatory authorities and we hope to arrive at a feasible solution sooner rather than later. The objective of the investment reforms can only be achieved when the authorities educate and appraise themselves in terms of their understanding of the legislative framework, and make more concerted efforts to bridge the gaps between legislative provisions and the practices actually being followed.

[1] Section 48 of the FIL.

[2] Section 62 of the FIL.

[3] Section 2 (c) of the TIPRA.

DFDL Contacts

Nishant Choudhary

Deputy Managing Director,

Head of Banking & Finance Practice

DFDL Myanmar


Bhawna Bakshi

Legal Adviser

DFDL Myanmar


The information provided here is for information purposes only, and is not intended to constitute legal advice. Legal advice should be obtained from qualified legal counsel for all specific situations.

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