Almost a month after a military coup that has met with massive popular resistance, Myanmar’s banking system is struggling to function, even as it continues to meet basic needs.

Since February 8, when employees of both government-owned and private banks started joining the Civil Disobedience Movement (CDM) against military rule, financial transactions in the country have slowed to a trickle, according to a bank official who asked to remain anonymous.

“The money flow has just stopped,” the official said, stressing that while most bank operations have been suspended, the system remains intact.

The greatest impact has been felt by trading companies, which are unable to complete transactions with international entities requiring letters of credit or telegraphic transfers due to the closure of banks. 

While banks continue to fill ATMs with cash every day and online services are still available, ordinary customers are also facing difficulties because of internet cuts by the new ruling regime and restrictions on bandwidth.

Meanwhile, banks continue to pay their employees even though they are unable to generate income from providing loans or offering services such as foreign currency exchange, a worker at a large local private bank told Myanmar Now.

Another major expense, the worker said, is rent. Although some private banks operate hundreds of branches, most are on leased property.

International banks with ties to local banks are also affected, but not as much as those that depend entirely on domestic business, she added.

State-run banks, such as the Central Bank of Myanmar and Myanma Economic Bank, are still running but have been particularly hard hit by the CDM, a Central Bank employee told Myanmar Now.

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A recent protest in front of the Central Bank office in Yangon. (Myanmar Now) 

Economic lifeline

While the current situation mainly affects banks and their customers, it’s just a matter of time before the woes of the financial sector begin to affect the wider economy, said one woman working in the industry.

“Most businesses can’t operate without banking services. We don’t know what’s going to happen, but the economy is going to be affected if trade is low,” she said.

A more immediate concern for most, however, is uncertainty about what the new regime will do next. Rumours that 10,000-kyat notes could be scrapped have already prompted many to withdraw their savings.

Since banks operate by accepting deposits from the public and giving loans to businesses in need of money, they wouldn’t have enough to cover all deposits if there were a run on the banks—a scenario that could become a self-fulfilling prophecy if enough people panic over fears of the banks’ stability. 

Customers of military-owned Myawaddy Bank, which reopened on February 15, were forced to wait in line every day to take out their money, and then were only given limited amounts.

Economic pressures stemming from the impact of Covid-1 could also take a toll on banks, as more and more businesses struggle to stay afloat, raising the risk that they won’t be able to repay loans.

“It’s difficult to tell within the first two or three weeks whether the loans will be paid back. There’s no need to worry for now, but in the long run, it’s not good for businesses. If bank loans aren’t paid back, the banks will struggle. And that will become a big problem if it means the entire country lacks liquidity,” said the woman working in the financial services industry.

Managing this delicate situation and ensuring a strong recovery will require a higher level of management skill than the new regime may possess, she added.

It’s also necessary, she said, to consider the economic repercussions of the international reaction to the coup, which has already resulted in targeted sanctions that could be a further drag on local companies’ ability to do business. 

Sanctions imposed by the US (which are likely to be followed by others from the UK and EU) are only supposed to affect leaders of the junta; but in a country where many people have similar names, international banks may take longer to process even legal transactions by those who are not on the blacklist, say people in the banking industry.  

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Restoring trust

After nearly a month of protests, the regime is showing signs that it is losing patience with resistance to its rule. As fears of a violent crackdown grow, few will be focussed on the fate of the country’s teetering banks. But how the authorities handle protesters over the coming days and weeks could well determine financial institutions’ prospects for survival.

Measures such as nightly shutdowns of the internet, which aim to stifle dissent while sparing daytime business operations, aren’t helping. By demonstrating its willingness to impose strict controls over every aspect of online life, the junta has revived fears of heavy-handed interference in the economy.

Win Thaw, the junta-appointed vice chair of the Central Bank, has attempted to restore the situation to normal by instructing banks to re-open by any means possible. Last week, he told Myanmar Now that the bank is trying to continue providing online banking and ATM services.

But as the World Bank has announced that it will only permit the transfer of funds needed to complete previously approved projects, it will take more than reassuring words to save Myanmar’s banks—and its economy—from the disastrous impact of the coup.

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