On 16 June 2021, the Central Bank of Myanmar (CBM) issued letter 105/2021 (Letter), its latest attempt to combat the liquidity problems faced by the Myanmar financial sector.
The key points of the Letter include:
banks are to limit transfers between a customer’s saving account to their current account, payment applications, mobile wallets or cards (such as a prepaid debit card) to one transaction per week. Cash withdrawals from a savings account are limited to one withdrawal per week. The Letter also mentions that the value of transfers of money out of saving accounts should be limited to an “appropriate amount”;
when customers withdraw funds from the bank, the bank should inquire about the purpose of the withdrawal and prioritise withdrawals for paying salaries and pensions. Payments to service providers and vendors are encouraged to be made through transfers;
term deposits should be paid out in cash or transferred to another account when they mature, implying that banks may refuse to allow depositors to withdraw funds prior to the maturity of their term deposits;
merchants receiving payments processed through payment processing services are limited from withdrawing in cash more than 50% of the sale proceeds received; and
government contracts are to be paid by fund transfers to a contractor's account, not paid in cash.
This is the second time that the CBM has introduced regulations aimed at reducing cash withdrawals, the first attempt on 1 March 2021 (see more here) lowered the cash withdrawals limits by individuals and companies, this did not fix the problem with most banks continuing to reduce withdrawal limits even further and making it more difficult to access cash.
The CBM has also eased the regulatory burden on banks by reducing the reserve requirement and changing how the liquidity ratio is calculated (see more here).
Effects on business
For most businesses, probably the most significant provision in the Letter is that it supports the notion that banks can use their discretion when allowing customers to withdraw cash depending on the purpose of the withdrawal. Specifically stating that withdrawals for salary payments and pensions have priority and payment of suppliers and vendors are encouraged to be made through transfers.
If the liquidity of the banks continues to deteriorate, businesses may find that banks limit withdrawals for certain purposes even if under the cash withdrawal limit.
B2C businesses which make the majority of their revenue from customer payments may be affected by the cash withdrawal limit of 50% of sale proceeds. E-commerce, food and beverage, and retail businesses will be among the sectors impacted, especially where their customers prefer making electronic payments, but suppliers only accept cash.
Requiring government tenders to be paid for by transfers rather than cash will likely affect the construction sector, with contractors needing to manage the problems that most input costs are payable in cash, while payments will be made directly to the contractor’s bank account with limited ability to be able to withdraw the cash.
Effects on individuals
Most customers depositing money at the bank do so by depositing into savings accounts, taking advantage of the high interest rates available. Customers intending to keep their deposits at the bank for a longer period may choose to keep their money in a term deposit. Even though not a new requirement with a 2017 directive by the CBM putting in place a restriction that funds can only be withdrawn once a week, in practice prior to the current liquidity difficulties banks have been fairly relaxed with customers withdrawing funds from saving accounts, in some cases even linking them to ATM cards. It was also previously possible to redeem money early from term deposits, if foregoing the higher interest rate.
The Letter makes it more difficult to withdraw cash from savings accounts by allowing banks to place a limit on how much money can be moved out of a savings accounts and restricting the ability to move such funds to once per week. The letter also appears to allow banks to limit the ability to redeem funds from term deposits prior to maturity.