Prolonged Myanmar Crisis...Concerns Over Bank Sector's Overseas Strategy Disruptions (Comprehensive)

Business Resumed but Tense Due to Escalating Clashes Between Myanmar Military and Protesters
Local Companies' Project Disruptions Raise Concerns for Banking Sector

[Asia Economy Reporter Park Sun-mi] As the Myanmar coup d'?tat shows signs of prolonged instability, domestic banks have encountered difficulties from the early stages of entering the market. Following a year in which overseas operations failed to yield significant results due to the spread of COVID-19, ambitious plans for Myanmar business are now unable to proceed at pace for the time being. Banks that invested heavily in Myanmar as a strategic hub in response to the government's New Southern Policy are inevitably facing setbacks in their global strategies.

According to the Financial Supervisory Service on the 19th, as of the end of September last year, 11 domestic banks operate local corporations, offices, or branches in Myanmar. All five major banks?KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup?have corporations, offices, or branches in Yangon, Myanmar, while three policy banks?KDB Industrial Bank, Korea Eximbank, and IBK Industrial Bank?also operate offices in Yangon. DGB Daegu Bank and Sh Suhyup Bank each have local corporations in Bago and Naypyidaw, respectively.

What is the current situation in Myanmar?

Currently, Myanmar is in turmoil as the military has seized power through a coup, arresting and detaining many civilian leaders including State Counsellor Aung San Suu Kyi, leading to clashes between the military and protesters across various regions. Protesters condemning the military coup have occupied roads in cities including Yangon daily, while police have formed suppression lines to block them. Tear gas has been deployed, and armored vehicles and armed forces have gathered.

Following the Myanmar Central Bank's order to suspend operations on the 2nd, domestic banks that had temporarily closed have now resumed business after the suspension was lifted. However, as clashes between the military and protesters intensify, most domestic bank employees dispatched locally are working from home except for essential personnel. Local corporations, offices, and branches are open but conducting only minimal operations. Domestic banks are closely monitoring the safety of their local staff and are planning further responses based on embassy notices.

The problem lies in the fact that domestic banks have encountered chaos at the initial stage of establishing their business presence in Yangon, Myanmar's economic capital. Nonghyup Bank opened its Yangon office in October last year, KB Kookmin Bank launched its local corporation on the 28th of last month, IBK Industrial Bank also launched its local corporation on the 21st of last month, and the Korea Development Bank opened a branch on the 8th of last month. The recent surge in local market entry by domestic banks has only just begun.

Banks entering the local market have planned their business strategies focusing on expanding networks with the local government, strengthening their operational base, and enhancing corporate and retail banking in line with the government's New Southern Policy. For example, when domestic banks establish corporations in Myanmar, they can conduct corporate and retail banking without restrictions within Myanmar and have the authority to open up to 10 branches within the corporation.

Work from home except essential personnel...some have yet to start operations

A representative from a locally operating bank said, "The current situation in Myanmar is an unpredictable chaos, making it impossible for corporations and offices to conduct proper business," adding, "Some banks that launched local corporations this year have not even been able to start operations."

Another bank official explained, "Since Myanmar is aligned with the government's New Southern Policy and domestic companies have entered the market, domestic banks have also established a presence in Myanmar to support these companies. However, if the Myanmar coup situation continues and disrupts local projects of companies, the banks supporting these projects could also suffer damage. This is the biggest concern for banks operating in Myanmar."

If the turmoil from the Myanmar coup continues for a long time, domestic banks will inevitably have to shift their focus for New Southern region expansion to other locations. The Korea Development Bank plans to open a Hong Kong branch this year, focusing on corporate finance and fundraising to support Korean companies' expansion into Asia, expand financial support, and participate in local infrastructure projects in line with the government's New Southern Policy. KB Kookmin Bank intends to accelerate its market dominance through the acquisition of Indonesia's Bukopin Bank despite ongoing legal disputes with local Indonesian companies.