The financial sector is the lifeblood of any country’s economy, and its smooth functioning is central to the economy’s rapid and inclusive economic growth. A well-functioning financial system must intermediate efficiently between savers and borrowers, manage risks prudently, provide a wide variety of financial services, mobilize savings effectively, identify and lend for sound investments, remain robust in the face of shocks, and ensure that access to finance is available to all.

Achieving these aims in Myanmar will require making gradual, steady, and transparent reforms to the current financial system to overcome the failings of the past, address the sector’s weaknesses, and build on its strengths. Policymakers will need to display patience and flexibility—knowing that the pace of reform will need to match the country’s availability of skills and its institutional capacity. Also, periodic shocks, whether originating at home or abroad, will require strategic adjustments and an occasional recalibration of priorities.

The banking sector in Myanmar is dominated by state-owned banks. After nationalizing the banking system during the socialist era and experiencing a severe bank run in 2003, the Myanmar banking system is currently undergoing a significant reform process aiming at growth and sustainability.The on-going revision of the legal framework is bringing Myanmar closer to international standards and is changing the way banks operate.

Myanmar needs a reform strategy that reflects these principles. Crafting such an approach, even when the intention is not to provide a blueprint, involves identifying the key challenges facing the financial sector and finding ways to address them. The task is urgent and, where appropriate, the Myanmar authorities may wish to invite technical assistance from relevant international agencies.The Myanmar banking sector is particularly facing challenges in the pace and nature of the reform process, developing human resources, and in re-establishing trust in the banking sector.


Another major challenge is how to develop their own banking system so they can support the development of its own small medium enterprises (SMEs) and its own local corporate so that later on it will compete with these multinational corporations that are coming into the country.

During the recent reform process, the banking sector in Myanmar has already undergone tremendous changes. The upcoming years will continue to bring along changes and will pose challenges to the sector. Banks are currently up-scaling their operations and growing in terms of clients, branches, staff members, and total assets. After more than five decades, foreign banks are set to fully return to Myanmar later this year as part of the government’s policy reforms aimed at developing the economy and infrastructure. The foreign banks will also provide a key source of funding in a country hungry for capital for development.

Key economic reforms in Myanmar concerning the easing and simplification of foreign investment restrictions and procedures have moved ahead under the new Myanmar Foreign Investment Law (MFIL) of 2012. The country moved toward a managed floating of its currency, the kyat, which was earlier pegged to the U.S. dollar. This has eased significant complexities faced by investors and traders related to the multiplicity of exchange rates before. The authorities have also shown commitment toward granting more autonomy to the central bank in monetary policy decisions.

Three years of reforms have yielded mixed results. Even though the economy has made progress, implementation of these reforms and further clarity of the law at a broader level remains the government’s key focus before general elections in 2015. Foreign investors are still wary of political instability, policy reversals, corruption (which Transparency International’s Corruption Perception index ranked Myanmar 157 out of 177 in 2013), the problems of unskilled labor and the country’s huge infrastructure deficit.