Myanmar's banking system vulnerable to rumors

Some US$10.5 million was withdrawn from Kanbawza Bank on Friday last week due to unfounded rumors.

Maynmar's banking system tunred out to be prone to unfounded rumors that police had intercepted a Kanbawza truck loaded with contraband and arrested the bank's chairman, Aung Ko Win.

This is the biggest test since Myanmar's fledgling banking system started a major overhaul.

Economists and academics say there is an urgent need to reform Myanmar's fragile banking system, that is prone to rumors and speculation, as it rapidly expands.

Kanbawza and the central bank denied the rumors and assured panicky depositors the bank's 80 branches had enough capital to withstand the run at its two biggest cities, Yangon and Mandalay. But it took days to restore confidence.

"I'm sure we can survive and in an emergency, we can borrow from the central bank with the bonds we have bought from them," said the bank's vice-chairman, Than Lwin, told Reuters

A third of deposits were tied up in bonds, he said, and each branch had enough cash to handle withdrawals. The bank, which has 100 billion kyat in capital, said the panic withdrawals had stopped as of Monday.

The source of the Kanbawza rumors remains a mystery and the central bank insisted it was fully behind all of Myanmar's 19 banks, some private, some part state-owned. A Kanbawza insider said it may have been started by businessmen seeking to push up the local price of gold.

Aung Ko Win on Tuesday described the rumor as an "attack" instigated at home and abroad "with intent to hurt not only the country's economic but also political situation."

Another cause for concern is the lack of insurance for deposits, meaning the run could happen again at any time.

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