US embassy cable - 03RANGOON271

C O N F I D E N T I A L SECTION 01 OF 02 RANGOON 000271 
 
SIPDIS 
 
STATE FOR EAP/BCLTV, EB 
COMMERCE FOR ITA JEAN KELLY 
TREASURY FOR OASIA JEFF NEIL 
USPACOM FOR FPA 
 
E.O. 12958: DECL: 02/27/2013 
TAGS: EFIN, PREL, ECON, BM, Economy 
SUBJECT: BURMA'S BANKS: HOPING FOR THE BEST, EXPECTING THE 
WORST 
 
REF: A. RANGOON 249 AND PREVIOUS 
 
     B. RANGOON 30 
 
Classified By: DCM Ron McMullen for Reasons 1.5 (B,D) 
 
1. (C) Summary: Week two of the banking crisis started with 
grand hopes of a resolution to liquidity problems, but closed 
with little change in the overall situation.  The GOB started 
the week strong, with the apparent extension of Central Bank 
loans on the 24th, but remained disturbingly silent and 
inactive the rest of the week.  Banks continue to hemorrhage 
deposits, and are maintaining, and in some cases reducing, 
their withdrawal limits.  Despite a stalled economy, and 
without significant assistance from the banks, companies 
scrimped and saved to ensure payday passed on the 28th with 
no apparent disruption.  However, it appears employers may 
have used up their last reserves to meet payroll, and may 
have little left to face any future shocks.  End summary. 
 
Banks Still in Doldrums 
 
2. (C) Rumors at the beginning of the week that Burma's 
private banks would lift their weekly withdrawal limits by 
February 26 proved to be greatly exaggerated.  It is clear 
that some private banks are having more trouble than others, 
but all are in increasingly desperate straits.  All private 
banks maintained withdrawal ceilings throughout the week. 
However, until February 27, some were still able to provide 
500,000 kyat (about $500) per week to customers.  By fiat of 
the Myanmar Banking Association, as of February 27 all banks 
were told to reduce their weekly limits to no more than 
100,000 kyat (though some banks were reportedly only able to 
provide 50,000 kyat per customer/week).  Bankers report 
dismal conditions at branches across Burma, though the 
tightest situations remain in Rangoon and Mandalay. 
 
3. (C) According to our calculations, over the course of this 
week the combination of tokens and withdrawal limits applied 
by the banks allowed for withdrawals of at most 30 billion 
kyat.  In fact, banking sources say that net outflows were 
likely quite close to the full 30 billion -- a bad sign for 
the banks.  AWB, KBZ, and the other large banks have been 
willing in a very few cases to lift their withdrawal limits 
slightly for major depositors who needed emergency cash to 
meet their payrolls.  However, the amounts that the banks 
actually allowed to be withdrawn were reportedly far lower 
than their customers demanded.  Two bankers reported that 
military intelligence insisted on vetting all requests for 
emergency withdrawals, approving very few. 
 
4. (C) On the plus side, bankers reported some return of 
deposits (mostly into so-called "guaranteed" accounts). 
However, the number of returnees was relatively 
insignificant.  Likewise, businesspeople report that the 
banks asked borrowers to repay immediately between 25-40 
percent of their outstanding balances.  However, business and 
banking sources have told us that borrowers have no ability 
to repay since commerce has slowed to a halt and companies 
are conserving every kyat on hand to pay employees and other 
current expenses.  We've heard rumors as well that banks have 
sold or are trying to sell some of their real assets in an 
effort to bolster cash reserves. 
 
5. (C) All in all, the total estimated withdrawals this week 
make the total outflow over the last two weeks roughly 230 
billion kyat (about 200 percent of estimated cash on hand in 
all private banks at the beginning of the crisis).  In 
response, the GOB this week reportedly extended 33 billion 
kyat in loans to the three most troubled banks (AWB, Yoma, 
KBZ).  The Central Bank also allegedly loaned 20 billion kyat 
to three second-tier banks (MUB, MOB, and Mayflower). 
However, comments from some bankers (including Yoma Bank's 
General Manager) have raised some questions as to whether all 
of these Central Bank advances ever were actually made. 
 
Wages Will Be Paid, But No Thanks to Banks 
 
6. (C) The limited exceptions to the withdrawal limits 
described above were not adequate to bail out most companies 
facing payroll on February 28.  Despite this, businesspeople 
were nervously optimistic that they would be able to pay 
their workers on time.  Garment firms, and other 
export-oriented industries, are paid in foreign exchange. 
These industries have cashed in some of their dollar reserves 
(at a relatively poor exchange rate) to get enough kyat to 
pay salaries.  Other firms with kyat revenues are following 
the same model, cashing in real assets or borrowing money 
from private lenders using these assets as collateral. 
Traders are cutting back on their purchases this week, at a 
cost to commerce, in order to conserve cash for payday.  The 
bottom line as of the end of February 28th, is that we've not 
seen or heard any evidence that employers have failed to meet 
their obligations. 
 
7. (C) The mad dash to cash in dollars combined with people's 
high expectations and the disappointing reality have had a 
strong impact on the dollar/kyat market.  After dipping 
briefly to 800 kyat last week, the dollar recovered on 
expectations of firm government action, back up to 1060 on 
February 25.  When withdrawal limits did not come off, and 
when employers realized they were on their own, the dollar's 
value dropped rapidly to 950 kyat/dollar on February 27, 
where it remained through February 28. 
 
How Long Can it Last? 
 
8. (C) Economists, bankers, and businesspeople are unclear 
how long the crisis will last, though there is no optimism 
that a solution is in the offing.  Though Burma has suffered 
nearly every economic indignity imaginable, a banking crisis 
is relatively uncharted waters.  Bankers continue to hope 
that at a minimum the GOB will be willing to add new money to 
meet demands for liquidity.  Even the most optimistic 
observers, though, are less sure that the government will 
take the correct steps to fully heal the patient (e.g., by 
liberalizing the conditions under which the banks operate) 
when and if the bleeding is stanched. 
Martinez