BURMA'S BANKS: SURVIVAL OF THE FITTEST

C O N F I D E N T I A L SECTION 01 OF 02 RANGOON 000235

SIPDIS

STATE FOR EAP/BCLTV, EB
COMMERCE FOR ITA JEAN KELLY
TREASURY FOR OASIA JEFF NEIL
USPACOM FOR FPA

E.O. 12958: DECL: 02/23/2013
TAGS: EFIN PREL ECON BM
SUBJECT: BURMA'S BANKS: SURVIVAL OF THE FITTEST

REF: A. RANGOON 225


B. RANGOON 214

C. RANGOON 213

D. RANGOON 30

Classified By: COM CARMEN MARTINEZ FOR REASONS 1.5 (B,D)


1. (C) Summary: The GOB has finally made a public statement
(on February 21) and committed to a strategy that will
hopefully spark a turnaround and begin to reshape the private
banking sector. As the crisis enters its second week, we can
only await the effect of the GOB's strategy on depositors,
industry, and wage earners. End summary.

S-1: Go About Your Business


2. (C) Secretary One (S-1),General Khin Nyunt, made the
first public GOB statement on the banking crisis on Friday
the 21st. To ensure its readers would not skip over the
important message, which was buried toward the end of a
ponderous speech on the economy, the SPDC mouthpiece "The New
Light of Myanmar" printed in bold type (in both the English
and Burmese language editions) S-1's brief statement on the
banks.


3. (C) The comment, surprisingly measured, called on people
to "do their work as usual without any worry concerning the
banks." The causes for the current crisis were not
"destructionist elements," but negative "rumors" about the
safety of the banks. S-1 assured listeners that money is
safer in the banks than outside, and that "banks guarantee
the safety of the savings." While not going so far as to
extend a GOB guarantee of people's savings, S-1 did say that
"the government is rendering assistance for the convenience
of the people."

Assistance Being Rendered


4. (C) In fact, the GOB did start off the week with some
efforts to get the crisis under control. Bankers and other
businessmen corroborated a rumor we'd been hearing that the
Central Bank had extended lines of credit worth 25 billion
kyat (about $25 million) to the three largest private banks
-- AWB, Yoma, and KBZ -- and between 10 billion and 20
billion kyat total to three other private banks -- MOB, MUB,
and Mayflower. As mentioned in Ref A, this money is being
offered only to banks that can provide collateral (real
assets) both on their books and in their possession. At the
end of business on February 24, limits on withdrawals were
still in place and most private banks still were offering
only 100,000 kyat (about $100) per week to depositors.


5. (C) We've also heard that the quasi-governmental
association overseeing Burma's industrial zones has
instructed garment factory owners to discuss with their
bankers the lifting, if need be, of withdrawal ceilings to
allow for factories to meet payroll requirements on February

28. The details and background of this order are unclear,
but the businessmen posited that the regime had ordered
private banks to support factory payroll operations as part
of the deal for additional loans from the Central Bank.


6. (C) Trading companies and other firms needing to meet
payroll have not received similar instructions. However, one
large trader with whom we spoke said that he expected banks
to offer some sort of preferential system of withdrawals for
corporate customers as payday draws near.

Comment


7. (C) The GOB appears to be stumbling toward a reasonable,
market-based solution to the current banking crisis. It
hasn't provided an across-the-board guarantee of deposits,
and has required the banks to cough up real collateral in
return for the additional liquidity they require. The
collateral will help ensure banks retire their borrowings
from the Central Bank as soon as they can, while the lack of
a deposit guarantee will leave the onus on depositors, if and
when they do get access to their accounts, to choose the best
bank for any return deposits they make. Some banks --
basically the worst of them -- will go under, but that's the
price of bad operations. Only if all banks threaten to sink
will the GOB have to do more. End comment.
Martinez