BU491 Lecture Notes - Unbanked, Country Risk, Press Release
Myanmar, or previously known as Burma, is a burgeoning economy in Southeast Asia that
presents a great opportunity for foreign investment. The recent regime change has greatly stabilized the
political landscape of Myanmar and with rapid growth in key industries combined with a shrinking
poverty rate, the country is in need of stronger financial services to better handle the banking sector into
the future. With no major private banks dominating in the country, this represents a huge opportunity for
Scotiabank, one of Canada’s leading financial institutions, to acquire a large stake in an existing bank in
Myanmar to operate as a subsidiary and take a first mover’s advantage to gain access to this rapidly
growing economy.
The Myanmar economy has been growing rapidly ever since the political reform that started in
2010. The transition into a civilian backed military, coupled with the newly formed government’s focus
on strengthening legal and regulatory framework has helped spur investments in the private sector,
resulting in a one of the fastest growing economies in the East Asia and the Pacific region. According to
the World Bank, the GDP growth rate in 2017 was at 6.4% and is expected to continue to grow to be 7%
by 2020 (World Bank, 2018). In addition, poverty has declined in both rural and urban areas from 37.5%
in 2010 to 26.1% in 2015. These statistics show a positive trend line in Myanmar’s economy, and the
improved economy will help drive both local and foreign investments into the country.
The banking sector in Myanmar is continuously reforming with an ultimate aim of establishing a
finance division that will offer many needed services. Reformation began in 2011 where the government
allowed private banks to carry out foreign exchange transactions and operate ATMs across the country
(ASEAN Briefing, 2018). In the following years of 2012 and 2013, the government approved laws to
establish the autonomy of the Central Bank of Myanmar as the licensing authority as well as regulator for
all other banks in Myanmar (ASEAN Briefing, 2018). Most recently, in 2016, Myanmar passed a law
establishing governing regulations for both domestic and foreign financial institutions in addition to
evening out the playing field between private and state-owned banks.
Scotiabank has a history of investing in emerging economies, evident by their heavy investments
in areas such as Mexico, Chile, Peru and Colombia. They have done this to achieve first mover advantage
in a relatively low banking penetration rate environment (Ligaya, 2017). These ventures represent a
growing segment that contribute to a stronger bottom line for the corporation and provide insurance
should domestic operations slow down due to uncontrollable macroeconomic factors.
To expand internationally, Scotiabank mostly employs an acquisition strategy to reach and
increase operations in different countries. However, they have also combined with other local institutions
abroad through their subsidiaries to provide more comprehensive financial services. Most recently in
January 31 2018, Scotiabank announced they had acquired Citibank’s Consumer and Small and Medium
Enterprise operations in Colombia. They did this through their subsidiary, Banco Colpatria Multibanca
Colpatria S.A., which they previously acquired a 51% stake in back in 2012 (Scotiabank, 2018).
There is currently a significant opportunity for Scotiabank to enter Myanmar’s banking sector, as
the country is poised for significant economic growth but strapped for resources required to undergo such
growth. The United Nations Capital Development Fund estimates that the demand for financing in
Myanmar is US$1 billion, which is four times higher than the current supply (ASEAN Briefing, 2018).
This demand stems from a growing middle class filled with entrepreneurs who are looking for
loans to start new businesses (Aung, 2013). This presents a lucrative opportunity for Scotiabank to
expand their operations into many sectors within the Myanmar economy.
Myanmar is currently experiencing a banking boom - 120,000 new jobs are forecast to be created
in the coming decade. The sector’s asset base is expected to expand eightfold, and loans are predicted to
skyrocket to more than USD $164 billion at a compound growth rate of 29% (Chassat, P., & Förster, F. ,
2016). If Scotiabank were to enter the Myanmar market they would benefit greatly as a result of
becoming established and serving a rising economy with such significant growth potential.
Although Scotiabank can’t enter the market without proper licensing, foreign investors are
needed to form partnerships with local banks. Rather than providing direct lending in local currency,
Scotiabank is recommended to operate through a joint venture agreement by acquiring a significant stake
in a local bank. This will allow Scotiabank to financially back the local bank and infuse the economy with
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Document Summary
Myanmar, or previously known as burma, is a burgeoning economy in southeast asia that presents a great opportunity for foreign investment. With no major private banks dominating in the country, this represents a huge opportunity for. Scotiabank, one of canada"s leading financial institutions, to acquire a large stake in an existing bank in. Myanmar to operate as a subsidiary and take a first mover"s advantage to gain access to this rapidly growing economy. According to the world bank, the gdp growth rate in 2017 was at 6. 4% and is expected to continue to grow to be 7% by 2020 (world bank, 2018). In addition, poverty has declined in both rural and urban areas from 37. 5% in 2010 to 26. 1% in 2015. These statistics show a positive trend line in myanmar"s economy, and the improved economy will help drive both local and foreign investments into the country.
