Since the implementation of the new Myanmar Companies Law (“MCL”) in August, the so-called 35% rule has been subject to interpretation by each government Ministry. Slowly, we have been seeing updates from Ministries on whether they will allow 35% foreign shareholding in various sectors. On 29 January 2019, the Central Bank of Myanmar (“CBM”) issued a notice confirming that private Myanmar banks may now accept up to 35% foreign investment (CBM Regulation 1/2019, the “Notice”).
Is CBM approval still required?
The Notice states that banks wanting to accept foreign investment shall submit the details of the arrangement to the CBM. This does not override the requirement for approval in the Financial Institution Law (“FIL”). The FIL provides that when a shareholder plans to acquire a ‘substantial interest’ in a bank, prior approval of the CBM is required – this applies equally to foreigners and Myanmar nationals. The FIL defines a substantial interest as owning, directly or indirectly, 10% or more of the capital or the voting rights in a bank – even control over the management of the bank can be considered a substantial interest, at the CBM’s discretion. While interests not meeting this threshold theoretically do not require prior approval, under the Notice the CBM must be notified at a minimum and it is likely the CBM would still expect an application for approval.
This is a chance for Myanmar’s private banks to receive investment and expertise from foreign banks which could help to improve banking infrastructure and bring the sector in line with international standards. We expect many of Myanmar’s 25 private banks will be seeking interest from foreign investors, and we are already seeing foreign investors conducting due diligence on banks with an investment in mind. Along with the recent liberalization of Myanmar’s insurance sector, this Notice is a very positive step in encouraging foreign investment in Myanmar and the start of a complete overhaul of the financial services market, which should increase certainty for investors over the years to come.
Rhys is an Australian qualified lawyer, educated in Australia, Hong Kong and China. Rhys has experience in cross-border M&A transactions, having advised on acquisitions in the infrastructure, energy and banking sectors, assisting both foreign investors and Myanmar companies.