Bank interest rates cut by 2pc

Kanbawza Bank employees prepare a transaction at the bank last week.
Pic: Kaung Htet

Central Bank cuts interest rates to strengthen dollar

Bundles of kyat are piled on the counter of a Kanbawza Bank branch in Yangon last week. The Central Bank of Myanmar announced on September 1 that it had cut the interest rate for commercial loans from 17 to 15 percent, while banks are now free to set a savings rate of between 10 and 12pc, down from a flat rate of 12pc previously. It was the first change in interest rates since April 1, 2006, and is part of government attempts to weaken the local currency. Full coverages pages 10 and 12.
Pic: Kaung Htet

By Than Htike Oo and Aye Thidar Kyaw
September 12 - 18, 2011

THE Central Bank of Myanmar reduced interest rates on loans and savings by 2 percent on September 1 in what is widely considered the latest attempt to reduce the value of the national currency.
“We were informed by the Central Bank on September 1 to reduce interest rates charged on bank loans from 17 to 15pc. The announcement also said we were not allowed to set interest rates on savings accounts lower than 10pc and not higher than 12pc,” said U Than Lwin, deputy chairman of the privately owned Kanbawza Bank and a retired deputy governor of the Central Bank.
Savings accounts until September 1 accrued interest at 12pc.
“The Central Bank has not changed any of its rates and this announcement only affects private banks,” U Than Lwin said.

He added that the reductions could accelerate the country’s economy by allowing businesses to access cheaper credit. He also doubted that the reductions in the interest rates for savings accounts would see a significant fall in the amount of money in savings accounts because other investments opportunities were scarce in comparison to neighbouring countries.

“Normally people tend to invest their money in bond markets and stock markets in other countries. But because we don’t have them, people have less options, so I don’t think there will be a rush to withdraw money from savings accounts,” he said.

U Thet Lwin Shwe, executive director of Asia Green Development Bank, said it was “unlikely” that depositors would close their accounts as a result of the rate reduction.

“The interest rate reduction is not particularly large. And I’d say it’s unlikely that many depositors will withdraw their money and close their accounts,” he said.

A Central Bank official said: “We have to think carefully about this because the reduction of interest rates on bank loans means banks earns less from those loans and the lowering of interest rates on deposit accounts gives less incentive to put money into the bank,” he said.

An official from Myanma Economic Bank said other investment options, such as gold or property, were prohibitively expensive and doubted that many people would rush to invest in those.

Private banks will soon hold a meeting to set an industry wide interest rate on savings accounts, both U Than Lwin and U Thet Lwin Shwe said.
http://www.mmtimes.com/2011/business/592/biz59201.html