Sule Pagoda in downtown Yangon, next to the head office of AGD Bank (Axel Drainville/Flickr).
Bank shake-up exemplifies a push by Myanmar elites to sever ties with the past
For the readers of the July 20 issue of Myanmar’s Messenger Journal, the interview on the cover was an unwelcome blast from the past. Kyaw Ne Win, the grandson of strongman Ne Win – who exercised absolute authority over Myanmar for 25 paranoid years – announced that he had purchased a 60 per cent equity stake in one of the country’s largest banks, AGD, and claimed that he “and his friends” wanted to purchase up to 85 per cent of the bank’s shares.
Officials at the bank, however, contested his claim, telling the media that he had purchased a mere 1.5 per cent stake. That such a massive discrepancy is possible speaks to a fundamental lack of transparency in Myanmar’s financial system. It is unknown how many of the 15-odd major shareholders in AGD Bank have ties to Kyaw Ne Win. AGD Bank – although it is a public company – has no legal obligation to disclose who its shareholders are.
Ironically, coming under the control of the family of the universally loathed dictator could actually make AGD Bank a more legitimate enterprise, in international eyes, than it was before the ownership shake-up, and this has to do with its former controlling shareholder. Tay Za, Myanmar’s richest man and a “crony” businessmen with close ties to the military, previously had a controlling stake in the bank, but has since sold off his shares entirely, his brother Thiha told the media last week.
AGD remains on the Specially Designated Nationals (SDN) List, published by the U.S. Treasury. Listed individuals and companies are barred from doing business with U.S. citizens or entities, and AGD’s continued presence is likely a function of its ties to Tay Za, whose self-admitted links with North Korea on behalf of the government and his importation of military hardware have long put him squarely in Washington’s sights.
Because Myanmar currently lacks a modernised bourse, shares in the bank – and those of nearly all of the country’s public companies – change hands among small groups of insiders. But all of that is set to change next year, when Myanmar’s first modern stock exchange comes online, with technical assistance and financing provided by Japan. AGD is currently preparing an initial public offering (IPO), and, in December, signed a memorandum of understanding with Japan’s Daiwa Securities to help it get ready.
This push for transparency may reward AGD – and the country’s other banks – with foreign partnerships and capital. In May, Naypyidaw announced that it would issue up to 10 banking licences to foreign banks by the third quarter of 2014, although these banks will face considerable limitations in terms of the services they will be able to provide.
There is merit to denying foreign banks unfettered access to Myanmar’s nascent banking market, because even the largest domestic banks suffer from serious liquidity issues, and need domestic deposits to bolster reserves. Foreign banks will essentially be barred from providing retail services – unless they choose to partner with an existing local bank. Standard Chartered, which has forged a reputation on its early entry to developing markets, opened a representative office in Yangon last year, but failed to submit a formal expression of interest in a banking licence. This has led to speculation that the bank will ultimately seek to form a joint venture with a local bank to provide retail banking services, although it has not publicly announced its plans.
For AGD, the incentives to ditch its crony-army baggage are high, because snagging a joint venture deal with a foreign bank would serve to augment its bottom line and international respectability. To that end, the U.S. has started a “consultation process” with SDN-listed entities in Myanmar, with the eventual aim of removing those that show evidence of reformed practices and who have severed ties with the military.
In Washington, however, consensus is divided on the future of the sanctions regime. Recent backsliding by Naypyidaw on human rights issues has prompted at least one proposed bill that would ratchet up sanctions, but for business interests, the end of sanctions cannot come soon enough.
At a press briefing in June, Assistant Secretary of State for the Bureau of Democracy, Human Rights and Labor, Tom Malinowski, admitted that the U.S. seeks to “wind down” the sanctions regime, but it will do so in a way that is uniquely tailored to Myanmar. “It’s based on objective criteria and essentially what they have to do is to demonstrate to us in a verifiable way, backed by evidence, that they are engaging in responsible business practices,” he said.
“To ensure that some of the wealthiest and most influential actors in the Burmese economy operate in accordance with world-class standards of corporate and social responsibility – that would be good for Burma.”