The Central Bank of Myanmar recently issued a directive which goes considerable distance in further liberalizing and encouraging market access to local companies. The directive will foster increased competition in the market and addresses the persistent grievances of local companies in terms of their access (or the lack thereof) to channels and sources of foreign finance.
By virtue of this directive, the branches of foreign banks are now permitted to provide banking services, including financing and all other related banking services to local companies. This directive seeks to address the issues that local companies traditionally faced in trying to secure financial assistance from branches of foreign banks operating in Myanmar. The directive is also a welcome step for foreign banks in tackling thorny issues that foreign banks had to endure when interacting with local players in the market.
However, while more streamlined methods of foreign financing is appreciated by the local players, major challenges still exist with regard to the creation, perfection, and execution of securities in order to secure such financing. Particularly, it is not clear whether the Myanmar banks will appreciate such liberalization, when most of the Myanmar banks are facing operational stressed and need urgent reform. Also, since the flexibility of providing longer term-loans are available with the branches of foreign banks, the Myanmar banks are still working on an improvised model to circumvent the restriction of one year term for the loans they can grant.
The newly enacted Myanmar Companies Law enshrines and allows for the creation of securities and their due registration as an exception to Transfer of Immovable Property (Restrictions) Act 1987 (“TIPRA”). Nonetheless, doubts persist as to the perfection of such securities when read together with relevant provisions of the TIPRA. Under the TIPRA, a person is restricted from transferring immovable property to a ‘foreign-owned company’. Therefore, we are still unsure as to how the local players may grant securities in favor of the branches of foreign banks to perfect and validate the financing. Particularly, while foreign lenders in practice employ the services of local banks to act as security trustees, the model has not yet been tried and tested before a court of law.
Additionally, the Office of the Registration of Deeds has been markedly unwilling to register a security over immovable property created in favor of foreign lenders.
Overall, the directive represents a positive step in the right direction in terms of opening up financing channels to local companies by allowing branches of foreign banks to provide financing. Until further policies on liberalization and/or amendments in the present legal framework, potential issues remain unresolved, especially with regard to the perfection, and enforcement of security interests by the branches of the foreign banks in Myanmar.
Partner, Managing Director
Deputy Managing Director,
Head of Banking & Finance Practice
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.