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Published byDina Stewart Modified over 5 years ago
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A New Bank Lending Methodology for a Sustainable Economic Development
By San Thein At Internews Myanmar (Reno Hotel) on January 20, 2018 05/07/2019 Latest Developments in Banking
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Latest Developments in Banking
Agenda 1. To share findings on the four regulations and directives: Capital Adequacy Regulation (Notification No. 16/2017) Asset Classification and Provisioning Regulations (Notification No. 17/2017) Large Exposure Regulation (Notification No. 18/2017) Liquidity Ratio Requirement Regulation (Notification No. 19/2017) Directive No. 1/2018 on converting overdrafts to term loans Directive No. 2/2018 on large exposure 2. New lending methodology 3. Q & A 05/07/2019 Latest Developments in Banking
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Latest Developments in Banking
Capital Adequacy Regulation: Capital Adequacy Ratio (CAR) (to be effective Immediately) CAR: A measure of the amount of a bank’s capital expressed as a percentage of its weighted assets. CAR = Capital / Risk weighted Assets (8%) (previously 10%) (Regulatory minimum requirement) Capital = Risk Buffer Risk Weighted Assets = Risk Exposure Capital = Tier I (Core) Capital + Tier II (Supplementary) Capital Regulatory Capital = Tier I + Tier II – Equity Investment 05/07/2019 Latest Developments in Banking
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Latest Developments in Banking
Asset Classification and Provisioning Regulations (to be effective 6 months from 7/7/2017) Classification of loans and advances and specific provisions General loan loss provision: 2% of total outstanding loans and advances Overdraft to be cleared/paid in full for a period of two consecutive weeks annually if not to be classified as above. Sr Classification of loans & advances Days past due Provisions on shortfall in security value A Standard 30 days 0% B Watch 31 – 60 days 5% C Substandard 61 – 90 days 25% D Doubtful 91 – 180 days 50% E Loss Over 180 days 100% 05/07/2019 Latest Developments in Banking
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Large Exposure Regulation (to be effective immediately)
A bank shall not take on financial exposure in respect of a person or a single counterparty or group of connected counterparties which constitutes in the aggregate a liability amounting to more than 20% of the core capital of the bank. Objective: to avoid concentration of risks 05/07/2019 Latest Developments in Banking
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Liquidity Ratio Requirement Regulation (to be effective immediately)
A bank shall maintain a minimum liquidity ratio of 20% at all times. Liquidity ratio: Net liquid assets expressed as a percentage of volatile liabilities Net Liquid Asset (Gross Liquid Assets – Collateralized Borrowings) Cash and claims on CBM and other banks Loans to FIs T-bills T-bonds/foreign sovereign securities not more than one year maturity Discounted bills not more than one 3 months maturity Debit note receivables/Inward remittance 05/07/2019 Latest Developments in Banking
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Volatile Liabilities (Short-term liabilities)
Demand deposit/saving deposit Time deposit not more than one year maturity Borrowing from CBM Outward remittance Debit notes payable Accrued interest payable on deposit Off-balance sheet item: Unfunded portion of approved lines of credit Irrevocable L/C due to be funded within one year 05/07/2019 Latest Developments in Banking
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Latest Developments in Banking
Directive No. (7/2017) on Asset Classification and Provisioning Regulation Objectives: to control potential risks associated with overdrafts To effectively reduce the overdrafts in three years to 20% of loans by Jul 2020 To streamline banks’ lending process Salient points: Maximum maturity: Overdraft - one year; Loan - 3 years Allow conversion of outstanding overdrafts to 3-year term loans with quarterly repayment amortization schedule for both P and I New lending products with repayment term based on business cycle and cash- flow pattern Essential tools: credit risk analysis and asset-liability risk management To reduce large exposure limit to permissible level 05/07/2019 Latest Developments in Banking
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Relaxation: Directive (1/2018 and 2/2018)
Directive (1/2018): Granting one year grace period for repayments of O/D (in amortization) Directive (2/2018): submitting date for reducing large exposure to permissible limit by 31 March 2018 instead of October 6, 2017 (90 days from July 7, 2017) (1/2018) and (2/2018) indicate the seriousness of overdraft and large exposure issues 05/07/2019 Latest Developments in Banking
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Importance of 4 regulations
Best international banking rules to establish a sound banking system in the long-run Make sure that banks have sufficient capital Identify risks and take necessary actions Remove potential source of instability Remove concentration of risks Restore ethical to the bankers 05/07/2019 Latest Developments in Banking
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Latest Developments in Banking
Main problems Large stock of overdraft – over 70% of loans - to overcome restrictions on loan and roll over the loan Related party lending Large exposure 05/07/2019 Latest Developments in Banking
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New lending methodology
Medium-term loans up to three years Business plan cash-flow statements Repayment schedule Monitoring 05/07/2019 Latest Developments in Banking
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Latest Developments in Banking
Q & A 05/07/2019 Latest Developments in Banking
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