A few blocks away, brokers in a small colonial-era building leaf through bundles of cash, part of an ancient "hawala" money transfer network used widely in Asia and the Middle East, and one of the only ways to get cash out of Myanmar.
"I have no doubt that the banks can catch up very fast," Serge Pun, chairman of SPA Group, a Myanmar investment company whose holdings range from real estate to financial services, told Reuters in an interview. "But we need the regulatory authorities to be ahead of us."
That is starting to happen.
That is starting to happen.
On Monday, Myanmar's dysfunctional banking system took a big step into the 21st century with the floating of the kyat, the most dramatic economic reform yet by a one-year-old civilian government and one that promises to transform trade, banking and public finances at a critical time.
For 35 years, the kyat was pegged to the International Monetary Fund's special drawing rights at 6.4 kyat per dollar, a rate only available to state-owned companies and about 125 times stronger than the black-market rate of 800 to 820 kyat used for most transactions.
A new reference rate, set at 818 per dollar on Monday, is the first phase of a plan to gradually unify rates used by private enterprises and create a market rate, according to central bank documents, simplifying foreign trade and investment.
It could also build confidence in a banking system tainted by money-laundering allegations and cut off from the global financial system. Anticipating the changes, Myanmar's banks have quietly begun an overhaul. Some are sending staff for training in Singapore and other financial centres, rolling out new technology and plotting branch expansions.
Global banks such as Standard Chartered and Singapore's United Overseas Bank are watching closely, as the former British colony embarks on its most dramatic changes since a 1962 military coup, when it was known as Burma.
So Lay Hua, managing director of transaction banking at UOB in Singapore, senses opportunity. Her bank recently helped train Burmese bankers in currency trading and risk management, and she is encouraged by a possible end to sanctions.
"Regional banks with strong institutional franchises such as UOB will have opportunities to contribute to Myanmar's future economic growth," she says.
Standard Chartered is also considering re-entering the Burmese market. "We are watching developments with interest," said a spokesman. Standard Chartered began operations in Myanmar in 1862 but shut its representative office in 2003 during the latest of several Burmese banking crises.
A LOT OF HYPE
The financial system, they add, needs to be rebuilt almost from scratch. T he first ATMs only recently arrived. Credit cards are barely used. The United States still bans financial transactions with Myanmar under its sanctions.
"There is a lot of hype right now about the prospects for Myanmar, but banking is very far off into the future in terms of real material growth," said Derek Ovington, an analyst at CLSA Asia-Pacific Markets in Singapore.
"It has a great potential as a growth economy, but the starting point is very low," he added. "You are talking years of development before it becomes material to anybody."
Burmese banks have a history of ill-fated optimism. Dozens of local and foreign banks thrived in the 1950s. But the industry withered after a 1962 coup introduced a disastrous "Burmese Way to Socialism" and sweeping nationalisation.
In 1988, the country's former military rulers re-introduced a market economy. Soon after, in 1992, private banks were allowed. Foreign banks began opening representative offices, poised for a day when they could do business in the resource-rich country of about 60 million people.
That day never quite arrived.
That day never quite arrived.
In 2003, shady money lending practices caught up with the sector, sparking a crisis exacerbated by inept decision-making at the central bank. Three banks collapsed.
Accusations of money laundering have since begun to fade but other problems are entrenched, including restrictions that prevent foreign banks from doing little more than research at representative offices.
UOB has such an office, as do about 15 other banks from countries ranging from Bangladesh, Brunei and Cambodia to China, Japan, Thailand and Singapore. In the late 1990s and early 2000s, the number of such offices peaked at around 40.
Several foreign banks, however, say they are considering opening new representative offices.
"We will transform the office into branch operations as soon as we get the license to do so from the regulators in the country," Nazir Razak, chief executive of Malaysia's CIMB Group Holdings Bhd, told reporters on Monday, referring to his bank's 17-year-old representative office in Yangon.
FOREIGN JOINT VENTURES
"If things go well, joint-venture banks between local private banks and foreign banks will be allowed in two or three years first, and foreign banks will be allowed to operate on their own," said a senior official from the Ministry of Finance and Revenue who declined to be identified because he was not authorised to speak on the record.
"But I think it will take time."
"But I think it will take time."
Myo Oo, chairman of Myanmar Citizens Bank, one of Myanmar's 19 private banks, is less confident.
"The government seems to have some reservations about allowing the full operation of foreign banks with concerns for the competitiveness of local banks," he said. "Our banking industry will never develop if we keep worrying like that."
Myo Oo's comment points toward bigger problems.
In a recent study, Sean Turnell, an expert on Myanmar's economy at Australia's Macquarie University, laid out a list of prohibitive regulations.
Among them: a cap on deposit interest rates below the prevailing inflation rate, a ban on the issuing of credit without collateral, a ban on private commercial banks lending to farmers, and complex rules on collecting interest from loans.
Coupled with a culture of cronyism that thrived under the former military junta, Myanmar faces a stunted banking system that in Turnell's words "scarcely operates like a banking system at all".
Bank credit has been growing, but from a low base. As a percent of gross domestic product, credit stood at about 17 percent in 2009, below most other Southeast Asian countries.
Well over half of all loans go to the state which has splurged on infrastructure in recent years, although loans to the private sector have climbed, too, since a 2010 privatisation wave in which hundreds of prized state assets were sold to tycoons with close connections to the military.
Bank credit to the private sector was up 63.7 percent in the 12 months to March, a recent Economist Intelligence Unit report shows. Overall domestic credit growth was 32 percent in August 2011 from the same month the previous year, it said.
Deposits are up, too, reaching 5.2 trillion kyat in September, more than doubling from the end of 2009, the EIU said. At the end of 2010, outstanding loans, including those to government, equalled about 81 percent of total deposits.
But the EIU raised a red flag over the banking sector's outstanding foreign liabilities, calling then a "cause for concern" at nearly $3.4 billion. That is almost half the country's total foreign exchange reserves, which Upper House lawmaker Aye Maung put at $7.2 billion.
The figure is all the more perplexing given Myanmar's ban on foreign currency-denominated assets.
While such small businesses employ the bulk of the country's workers, most have no access to bank loans. Htoo Myint Naung laughs at the very thought.
"Everybody knows you don't go to the bank for a loan. They will refuse," the 24-year-old said. "They may give you money for a laptop, for instance, but not for a business plan."
Lucky businesses turn to family or friends for money, others to underground lenders with prohibitively high interest rates.
In rural Myanmar, farmers have turned to local moneylenders for cash to pay for seeds, fertilizer and other materials. That has left a huge portion of the population in debt with double digit interest rates - a cycle that could be broken if more lenders are allowed to give credit to farmers.
KYAT PRIORITY
Economists say the currency reforms should begin to stabilise the economy and underpin a revival of confidence in the kyat, which, in turn, could see more people open bank accounts. Less than 10 percent have accounts now.
