Is Myanmar an Attractive Growth Market for Singapore’s Banks?

Myanmar, one of the poorest countries in Southeast Asia, has in recent years opened its economy to the world.

This has led to a massive influx of capital flowing into the country. In Myanmar’s fiscal 2014-15, it recorded foreign direct investment (FDI) of US$8.1 billion, a massive 25 times more than the dollars seen just five years ago in fiscal 2009-10.

With a tidal wave of capital rushing into Myanmar, it’s no surprise to find that many banks in Asia are looking for ways to enter the market. Singapore’s own duo of Oversea-Chinese Banking Corp Limited (SGX: O39) and United Overseas Bank Ltd (SGX: U11) are two such banks – both have been busily expanding their banking businesses in Myanmar.

It was reported by The Business Times earlier today that OCBC has signed memoranda of understanding (MOUs) with 10 Myanmar banks – three state-owned banks and seven private commercial banks – when it officially opened its Myanmar branch today.

According to the Business Times, the MOUs deal with collaborations between OCBC and the 10 banks in areas like “cash management, trade finance and treasury solutions” to support future growth in Myanmar’s trade and FDI-related activities.

UOB on the other hand is expecting to make US$300 million in loans over the next 12 months to clients who are looking to conduct business or invest in Myanmar. In fact, UOB has already inked a deal with Cycle & Carriage Automobile Myanmar Company, which is partly owned by Singapore-listed Jardine Cycle & Carriage Ltd (SGX: C07), to provide funding for the latter’s car showrooms and service workshop businesses in the city of Yangon.

Clearly, both OCBC and UOB are optimistic about the future of Myanmar and want to be a part of the growth story. Be it through the opening of physical branches in Myanmar (like what OCBC has done) or through the provision of financing deals for its clients to invest into and conduct business in Myanmar (like in UOB’s example), it seems that banks in Singapore are keen to build a greater presence in the country.

Foolish Summary

But with all that being said, an investment into a developing nation is always a relatively riskier affair. At the end of the day, both banks need to ensure that they are managing their risks prudently and not be overly exposed to a market that has yet to prove its long-term stability.

The bank that is able to tilt the risk/reward ratio firmly in its favour will be the one that benefits the most from the fast-growing new market that is Myanmar.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim does not own any companies mentioned above.