The worsening turmoil in Myanmar is casting a shadow over South Korean banks’ rosy vision of gaining a foothold in the Southeast Asian region as the ongoing political unrest has either entirely or partially suspended their operations.
South Korean banks have been gearing up to start business in the Myanmar market since 2012, as the quasi-civilian government undertook economic and political reforms. The administration that took power in 2011 institutionalized a new foreign investment law to allow financial firms across the globe to carry out market research in the country and provide financial services such as loans and savings.
As of December last year, 11 Korean banks have launched either subsidiaries or banking units in Myanmar, the Financial Supervisory Service data showed.
The protracted Myanmar crisis, including major economies’ decision to impose sanctions on businesses linked to the military, however, is now posing challenges to Korean lenders’ ambitious goals of expanding their market presence in the emerging Southeast Asian market.
KB Kookmin, the first foreign bank to set up a local subsidiary there in January, recently decided to suspend its operation due to escalating violence.
“We’ve repeated closing and opening of business in accordance with market conditions. Meanwhile, the loan default rate at the lender’s 20 branches and microfinancing institutions has yet to show a remarkable increase. We’ll continue to keep a close eye on Myanmar’s military coup risks,” said an official in Seoul.
Woori Finance Myanmar, a microfinance subsidiary established in November 2015, has closed temporarily, a Woori Bank official said.
“It is too early to decide whether to resume operations. (Woori Bank) will make related decisions by closely monitoring the prolonged political crisis in Myanmar.”
Also, NH NongHyup’s Yangon-based branch, launched in October last year, has been closed for the time being, making it difficult for the lender to call in loans.
Despite resuming normal operations, Shinhan and Hana Bank are keeping most of their employees working from home.
“Shinhan Bank’s Yangon branch is currently in operation, but it ordered telecommuting for its employees,” a Shinhan Bank official said.
“In preparation for possible secondary boycott sanctions imposed by the United States and allies on Myanmar military businesses, (Shinhan Bank) will step up monitoring of the situation to implement preemptive measures against the international community’s regulations on Myanmar military-related businesses,” he added.
Shinhan Bank first opened an office in Myanmar in 2013 and a branch in Yangon in 2016, as the first Korean commercial bank there. Hana Bank operates a microfinance institution in Hlegu township, a rural community northeast of Yangon, which was established in 2014.
Myanmar has drawn keen attention as “the next Vietnam,” largely due to its abundant natural resources, labor force and geographic advantage for economic development.
Since 2012, the nation has posted an average 7 percent in economic growth annually, led by its economic and political reforms, according to reports from the World Bank.
After Myanmar’s military overthrew the democratically elected government on Feb. 1 and declared a state of emergency to last for one year last month, however, phone and internet access have been restricted in many parts of the country, leading to bank closures nationwide.
Korean residents using some of their microfinance institutions in Yangon have been suffering from inconveniences, said Lee Byung-soo, head of the Korean Association in Myanmar.
“Korean residents here tend to feel more comfortable using Korean lenders’ microfinancing services than those of Myanmar’s local banks in terms of speed and efficiency,” Lee said.
“Not only residents but also entrepreneurs here, who had great expectations for Korean lenders’ corporate banking services, have been concerned over the protracted impact of the military coup on Korean lenders.”
Meanwhile, Lee added that Myanmar Sameul Geumgo -- a financial cooperative established in 2017 by the Myanmar government through the the Korean Federation of Community Credit Cooperatives’ management support of its financial systems and business models -- may experience a glitch in its management, as the government officials have been boycotting work as part of Myanmar‘s civil disobedience movement, led by public servants to reject the military takeover of the government.
”The Myanmar government officials are in charge of offering education on business operation to Burmese members of Myanmar Sameul Geumgo and supervision of their management system. The CDM has put a halt to such activities,” a KFCC official said.
“(The KFCC) also finds it hard to reach Myanmar Sameul Geumgo members to virtually provide management support -- the military blocked the internet.”
The KFCC didn’t invest in Myanmar Sameul Geumgo, but earlier signed a business partnership with the Myanmar government in 2019 and vowed to assist the cooperative with educational programs, the official added.
The entry of local financial institutions into the country has been expected to gain momentum due to a growing number of infrastructure projects between the two nations under the Moon Jae-in administration’s diplomatic initiative focused on Southeast Asia.
For instance, the state-owned Korea Land & Housing Corp. started construction of the Korea-Myanmar Industrial Complex by setting up a joint venture for the development project, owned 40 percent by LH, 40 percent by the Myanmar government and 20 percent by Global Sae-A, the Ministry of Land, Infrastructure and Transport said.
Should major economies, including the European Union and the United States, and international organizations like the United Nations reinforce sanctions on individuals and groups linked to last month’s military coup in Myanmar, local financial institutions may review withdrawing or downsizing their operations there in the worst-case scenario, according to market observers. Currently, about 300 Korean companies are running businesses across Myanmar, according to the Foreign Ministry.
By Choi Jae-hee (email@example.com