YANGON—Myanmar’s government is unlikely to let foreign banks set up full-fledged operations this year, the central bank’s deputy governor said, but it is studying ways to allow them to expand their presence possibly as early as next year.
Foreign banks are allowed only representative offices in Myanmar, where some 19 private local banks and three state-owned banks handle all banking services.

Speaking in an interview in Yangon earlier this week, Deputy Gov. Maung Maung Win said the likelihood of changing that situation this year “is very, very low,” in part because authorities are concerned about the impact on local financial institutions.

“Our private banks cannot compete with the foreign banks in terms of capacity, and capital,” he said. “We don’t want to get some kind of negative impacts” by letting foreign banks rush in too quickly.

Authorities are studying ways to let in foreign banks to help improve the country’s rudimentary financial system, which has only a few ATMs, no corporate bond market and no long-term mortgage lending. Mr. Maung Maung Win said possibilities include allowing international banks to form joint ventures with local banks or take equity stakes in them. “We think the best one is joint ventures,” he said.

But local banks must first shore up their businesses and begin offering a more sophisticated array of services so that they’re better positioned to compete, he said. Having installed the country’s first ATMs over the past year, banks are planning in coming months to begin issuing debit cards that can be used at local restaurants and stores. They are also establishing correspondent relationships with foreign banks and setting up wire-transfer services to connect more with the outside world.

Once those and other services are in place, “we plan to allow the foreign banks in,” Mr. Maung Maung Win said.

Myanmar’s government has already enacted wide-ranging political and economic changes over the past year, after a new, nominally civilian government took over from a harsh military regime that had controlled the country for nearly five decades. Hundreds of political prisoners have been released, restrictions on the Internet and press have been loosened and the currency has been floated to help modernize the economy.

Mr. Maung Maung Win said work is continuing on a law to make the central bank more independent. It now reports to the finance ministry, and has long been criticized for effectively printing money to finance the government’s spending. Establishing the bank’s independence is seen by many analysts as crucial to making the economy and financial sector more stable.

Mr. Maung Maung Win said such a law is unlikely to be enacted during the current parliamentary session, but it’s possible it could be passed in a subsequent session before the end of the year.

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