1. A New Bank Lending Methodology for a Sustainable Economic Development
By San Thein
At Internews Myanmar (Reno Hotel) on January 20, 2018
05/07/2019
Latest Developments in Banking

2. Latest Developments in Banking
Agenda
1. To share findings on the four regulations and directives:
Capital Adequacy Regulation (Notification No. 16/2017)
Asset Classification and Provisioning Regulations (Notification No. 17/2017)
Large Exposure Regulation (Notification No. 18/2017)
Liquidity Ratio Requirement Regulation (Notification No. 19/2017)
Directive No. 1/2018 on converting overdrafts to term loans
Directive No. 2/2018 on large exposure
2. New lending methodology
3. Q & A
05/07/2019
Latest Developments in Banking

3. Latest Developments in Banking
Capital Adequacy Regulation: Capital Adequacy Ratio (CAR) (to be effective Immediately)
CAR: A measure of the amount of a bank’s capital expressed as a percentage of its weighted assets.
CAR = Capital / Risk weighted Assets (8%) (previously 10%) (Regulatory minimum requirement)
Capital = Risk Buffer
Risk Weighted Assets = Risk Exposure
Capital = Tier I (Core) Capital + Tier II (Supplementary) Capital
Regulatory Capital = Tier I + Tier II – Equity Investment
05/07/2019
Latest Developments in Banking

4. Latest Developments in Banking
Asset Classification and Provisioning Regulations (to be effective 6 months from 7/7/2017)
Classification of loans and advances and specific provisions General loan loss provision: 2% of total outstanding loans and advances Overdraft to be cleared/paid in full for a period of two consecutive weeks annually if not to be classified as above. Sr
Classification of loans & advances
Days past due
Provisions on shortfall in security value A
Standard
30 days 0% B
Watch
31 – 60 days 5% C
Substandard
61 – 90 days
25% D
Doubtful
91 – 180 days
50% E
Loss
Over 180 days
100%
05/07/2019
Latest Developments in Banking

5. Large Exposure Regulation (to be effective immediately)
A bank shall not take on financial exposure in respect of a person or a single counterparty or group of connected counterparties which constitutes in the aggregate a liability amounting to more than 20% of the core capital of the bank. Objective: to avoid concentration of risks
05/07/2019
Latest Developments in Banking

6. Liquidity Ratio Requirement Regulation (to be effective immediately)
A bank shall maintain a minimum liquidity ratio of 20% at all times.
Liquidity ratio: Net liquid assets expressed as a percentage of volatile liabilities
Net Liquid Asset (Gross Liquid Assets – Collateralized Borrowings)
Cash and claims on CBM and other banks
Loans to FIs
T-bills
T-bonds/foreign sovereign securities not more than one year maturity
Discounted bills not more than one 3 months maturity
Debit note receivables/Inward remittance
05/07/2019
Latest Developments in Banking

7. Volatile Liabilities (Short-term liabilities)
Demand deposit/saving deposit
Time deposit not more than one year maturity
Borrowing from CBM
Outward remittance
Debit notes payable
Accrued interest payable on deposit
Off-balance sheet item:
Unfunded portion of approved lines of credit
Irrevocable L/C due to be funded within one year
05/07/2019
Latest Developments in Banking

8. Latest Developments in Banking
Directive No. (7/2017) on Asset Classification and Provisioning Regulation
Objectives:
to control potential risks associated with overdrafts
To effectively reduce the overdrafts in three years to 20% of loans by Jul 2020
To streamline banks’ lending process
Salient points:
Maximum maturity: Overdraft - one year; Loan - 3 years
Allow conversion of outstanding overdrafts to 3-year term loans with quarterly repayment amortization schedule for both P and I
New lending products with repayment term based on business cycle and cash- flow pattern
Essential tools: credit risk analysis and asset-liability risk management
To reduce large exposure limit to permissible level
05/07/2019
Latest Developments in Banking

9. Relaxation: Directive (1/2018 and 2/2018)
Directive (1/2018): Granting one year grace period for repayments of O/D (in amortization) Directive (2/2018): submitting date for reducing large exposure to permissible limit by 31 March 2018 instead of October 6, 2017 (90 days from July 7, 2017) (1/2018) and (2/2018) indicate the seriousness of overdraft and large exposure issues
05/07/2019
Latest Developments in Banking

10. Importance of 4 regulations
Best international banking rules to establish a sound banking system in the long-run
Make sure that banks have sufficient capital
Identify risks and take necessary actions
Remove potential source of instability
Remove concentration of risks
Restore ethical to the bankers
05/07/2019
Latest Developments in Banking

11. Latest Developments in Banking
Main problems
Large stock of overdraft – over 70% of loans
- to overcome restrictions on loan and roll over the loan
Related party lending
Large exposure
05/07/2019
Latest Developments in Banking

12. New lending methodology
Medium-term loans up to three years
Business plan
cash-flow statements
Repayment schedule
Monitoring
05/07/2019
Latest Developments in Banking

13. Latest Developments in Banking
Q & A
05/07/2019
Latest Developments in Banking