Banks have a fiduciary duty to ensure that the financial system remains sound and secure by adhering to regulations.
Central Bank of Myanmar (CBM) deputy governor U Soe Thein said in remarks to the Pyidaungsu Hluttaw on August 27 that this included ensuring that depositors do not lose their money and that banks collect what is owed them from loans issued.
He was replying to a question from lawmaker U Maung Myint from Minkin township, who asked about the CBM’s stance on businesses who have difficulty repaying their loans and whether the central bank has any solutions in mind after meeting business owners.
U Soe Thein pointed out that it was the central bank’s duty to ensure that banking and financial regulations were adhered to and that its mandate included oversight on banks’ responsibilities for the deposits that they accept.
Concerns over debt defaults and repayments by businesses have recently bubbled up again due to a July 2017 ruling issued by the CBM that private sector banks had to clean up their loan books by clearing so-called overdraft loans that can be rolled over indefinitely and made up 7pc of loans.
In late November 2017, the CBM announced that banks can allow those with overdraft loans to turn them into three-year term loans. The ruling was a step towards making regulations more in line with international standards.
U Soe Thein said banks cannot ignore the issue of bad loans even though businesses may not be doing well. Due to the ruling, banks have become more cautious and have been stricter about collecting overdue loans.
“It is unreasonable that businesses are not repaying the loans that they took,” the deputy governor added.
He said banks have to strengthen their capital base. “Business owners and banks can negotiate to restructure the business over a six-month period but if interest and principal are unpaid for two or three years, there can be no more negotiations and the bank must take action.”– Translated