On 30 April 2024, the Central Bank of Myanmar (“CBM”) issued a new directive which primarily focuses on two aspects: the minimum reserve ratio that banks must maintain in Myanmar Kyat and the interest rate that the CBM must pay on average excess reserves maintained by the banks with the CBM.

– The previous directive and order

The CBM had set a minimum reserve requirement ratio of 3.5 percent for banks to maintain in Myanmar Kyat under Directive No. 9/2023 issued on 5 April 2023. This requirement consisted of 3 percent from banks’ deposits at the CBM (CAB) and 0.5 percent from cash held by banks. Additionally, the CBM offered an interest rate of 3.6 percent on average excess reserves maintained by the banks with CBM.

– Changes with the new directive

With the new directive, the CBM has increased the minimum reserve requirement ratio for banks in Myanmar Kyat from 3.5 percent to 3.75 percent. The CBM aims to manage the increase in circulating capital and curb the rise in inflation prudently with this adjustment.

In this regard, state-owned banks, private banks (Myanmar and foreign owned) must maintain a minimum reserve requirement ratio of 3.75 percent comprising 3 percent from banks’ deposits at the CBM (CAB) and 0.75 percent from cash held by the banks.

To further support financial stability and generate more interest income for banks, the CBM has now set the interest rate on average excess reserves at 3.80 percent. Banks will now earn this interest on their average excess reserves, provided the excess reserve amount falls within the range of at least 7 billion Kyat (previously 10 billion Kyat) up to a maximum of 50 billion Kyat.

– Enforcing measures against banks that do not comply with the new directive

All banks must comply with this directive failing which CBM will impose fines listed under the Penalty Instruction No. (12/2016). This instruction letter states that CBM may take administrative actions against banks that fail to maintain stipulated minimum reserves. Such actions include restrictions on foreign currency auctions, deposit auctions, branch openings, and lending activities. Therefore, banks should prioritize meeting the minimum reserve requirement to avoid such penalties.

– Implementation of the new directive

This directive will take effect from 3 May 2024 and repeal Directive No. (9/2023) and the previous order issued by the CBM dated 5 April 2023.

The information provided here is for information purposes only and is not intended to constitute legal advice. Legal advice should be obtained from qualified legal counsel for all specific situations.