Cash-strapped depositors, a collapsing currency and lenders shut out of the global financial system – Myanmar's banks are being ground down by more than five years of military rule.

The economy shrank 2% in the fiscal year to March and consumer prices rose 24.6% year on year in April, the World Bank said in June, warning that a fresh fuel shock had piled new pressure on an already fragile system.

“While there are signs that economic conditions have stabilised, Myanmar's economy remains under significant strain,” said Melinda Good, the bank's division director for the region.

Behind the figures sits a slow-motion banking crisis. Since the generals seized power in February 2021, deposits have drained from private lenders, the kyat has lost roughly three-quarters of its dollar value and the sector has been cut adrift from Western finance by sanctions and a global money-laundering blacklist.

A currency in free fall

The kyat changed hands below MMK1,500 to the dollar before the coup. By mid-2024 the black-market rate had blown past MMK6,000 and briefly touched a record above MMK7,000, even as the central bank sold dollars to importers at a pegged rate thousands of kyat lower.

The Central Bank of Myanmar still holds an official reference rate near MMK2,100 to the dollar, but almost no one trades there. The bank keeps drip-feeding hard currency into favoured sectors – $2.9mn to edible-oil importers on a single day in June, for instance – yet the sums are too small to shift the street rate, and traders complain they cannot see where the dollars end up.

Deposits people cannot reach

Public trust never recovered from the bank runs that followed the takeover. As savers queued to pull out their money, lenders including KBZ Bank, the largest private institution, shut branches, and the authorities imposed withdrawal limits that forced customers to give notice before taking out large sums.

Private banks must still report cash withdrawals above MMK100mn ($47,600) to the financial-intelligence unit, and outsized withdrawals can trigger an investigation. To coax deposits back, banks later pushed one-year fixed rates as high as 12.5%, following a central-bank rate rise meant to tame inflation.

KBZ towers over a shrunken sector

KBZ Bank (Kanbawza Bank), founded in 1994 and genuinely private rather than military-owned, dominates what is left. It accounts for nearly 40% of retail and commercial banking, with 5.2mn customers and around 500 branches. Its KBZPay wallet, claiming some 10mn users, has become the workaround of choice in a cash-scarce economy, alongside rival Wave Money.

Below KBZ sit private majors such as AYA Bank, CB Bank and Yoma Bank – the last controlled by First Myanmar Investment, the first company to list on the Yangon Stock Exchange. The insurance market, led by Grand Guardian Insurance, is similarly thin and locally owned.

The state banks are another matter. Myanma Economic Bank and Myanma Foreign Trade Bank (MFTB) sit at the heart of the junta's finances, and it was defaults on MFTB loans that saw 23 companies and their directors blacklisted in August.

Cut off from the world

Washington has tightened the screws. In June 2023 the US sanctioned MFTB and a second state lender, Myanma Investment and Commercial Bank, accusing them of channelling foreign currency to buy arms for the military. Myanmar has also sat on the FATF blacklist of high-risk money-laundering jurisdictions since 2022, and was kept there again in June.

Foreign banks are backing away. Singapore's UOB moved to sever ties with Myanmar counterparts, Nikkei Asia reported, and a UN human-rights expert has accused international lenders of helping the regime move money. The borderlands, meanwhile, host sprawling cyber-scam compounds whose fraud proceeds run into the billions of dollars, CNN has reported, washing through the region's financial plumbing.

With Western markets closed off, the central bank has turned east, deepening banking and fintech ties with Russia and studying Sberbank's payment technology.

Symptom, not cure

For ordinary people the effect is corrosive: savings that lose value by the month, banks that ration cash and a currency that buys less with every fresh shock. For the generals, a hobbled but captive financial system still helps fund the war.

Little of it is transparent. The central bank publishes sparingly, and much of what is known comes from exile media and money-changers rather than audited accounts. What is clear is that nearly six years after the tanks rolled out, Myanmar's banks remain a symptom of the country's wider unravelling, not a way out of it.