US embassy cable - 05RANGOON924

C O N F I D E N T I A L SECTION 01 OF 02 RANGOON 000924 
 
SIPDIS 
 
STATE FOR EAP/BCLTV, EB 
COMMERCE FOR ITA JEAN KELLY 
TREASURY FOR OASIA, BOTF/FC PDERGARABEDIAN 
 
E.O. 12958: DECL: 08/10/2015 
TAGS: ECON, EFIN, PGOV, SNAR, BM, Economy 
SUBJECT: THE STATE TAKES OVER ANOTHER PRIVATE BANK IN BURMA 
 
REF: RANGOON 402 
 
Classified By: CDA Karl Stoltz for Reasons 1.4 (b,d) 
 
1. (U) SUMMARY: An apparent GoB takeover of Myanmar Universal 
Bank (MUB), Burma's sixth largest bank (measured by 
deposits), triggered increased withdrawals from MUB and a few 
other banks and has reduced fragile public confidence in the 
banking sector.  The GoB has not announced reasons for the 
arrest of MUB's Chairman and Executive Director, but the 
Bank's alleged involvement in narcotics trafficking and money 
laundering is believed to be the impetus.  There are 
currently no signs that the banking sector is under serious 
threat. End Summary. 
 
The State Takes Over 
-------------------- 
2. (SBU) On Friday evening, August 8, GoB authorities 
arrested MUB Chairman, U Tin Sein, who is a Chinese Shan, and 
MUB Executive Director, U Wint Kyaw and closed MUB branches. 
Both men are thought to be in Insein Prison.  On the 
following Monday, the branches reopened under the 
administration of Myanmar Economic Bank personnel, as 
instructed by the Central Bank of Myanmar.  Approximately 100 
depositors per day at each branch are now allowed to withdraw 
up to 3 million kyat ($2,632 at the current unofficial rate) 
once a week.  MUB had deposits of approximately 15 billion 
kyat ($13.2 million).  Currently, depositors make a request 
to withdraw funds, receive a receipt and can get their money 
five days later. 
 
3. (SBU) Many in the banking and business community believe 
money laundering activities prompted the takeover. Two events 
are discussed as possible bases for action: U Tin Sein's 
alleged connection with the recent seizure of a boat carrying 
drugs in waters near Burma, or information gained from a 
recent Thai government delegation.  The GoB has not made any 
announcements about the takeover, and these reasons are 
speculation. 
 
The Impact 
---------- 
4. (SBU) On August 8 and 9, the first two days after the 
takeover, bank clients withdrew approximately 18 billion kyat 
($15.8 million), an amount equal to approximately 15% of the 
total deposits at the top five private banks.  This amount, 
however, was primarily withdrawn from three banks: Kanbawza 
Bank, Cooperative Bank, and Myanmar Oriental Bank.  Kanbawza, 
a private bank, (second largest in deposits) has moved 2 
billion kyat ($1.8 million) from its reserve at the Central 
Bank to cover the withdrawals.  Cooperative Bank, a 
semi-private bank (third largest in deposits), has borrowed 2 
billion kyat from the Central Bank.  Myanmar Oriental Bank, a 
private bank, (seventh largest in deposits) has adequate cash 
reserves.  Bank sources say that as of Wednesday, August 10, 
the rush was over and withdrawal demands have subsided. 
 
5. (SBU) The takeover has had no immediate impact on the 
economy.  Approximately 20% of the banking sector is private, 
though some private banks are more accurately categorized as 
semi-private with government or retired government 
representatives on the board and are subject to 
government-directed loan decisions.  The kyat withdrawn from 
the banks will be in circulation, and may be moved to 
government banks, or used to buy dollars, gold, or other 
commodities perceived as safer. 
 
Comment: Confidence Takes a Hit 
------------------------------- 
6.  (C) Lack of Central Bank independence and lax oversight 
had allowed banks to be opened and capitalized without 
regulatory scrutiny of owners and investors.  There are no 
signs that other banks will meet MUB's fate, but there was no 
forewarning this time.  Two other banks, Asia Wealth and 
Mayflower, were closed earlier in the year for money 
laundering activities (reftel).  A certain victim will be 
consumer confidence in the banking system, just barely 
recovering from the 2003 banking crisis.  End comment. 
Stoltz