By Aung Hla Tun

Some foreign banks may be allowed to operate in Myanmar later this year, although initially they will only be allowed to have branches in certain areas and offer a limited range of products, government and banking sources said on Tuesday.

"The president last week formed a committee to choose five to 10 out of about 40 foreign banks who have opened representative offices in our country," a senior government official involved in the plans told Reuters on Tuesday.

"We plan to select suitable ones soonest and give them a limited licence so that they can start operations before the end of this year," he added.

Led by central bank governor Kyaw Kyaw Maung, the committee comprises senior government officials including the deputy finance minister, deputy attorney general and central bank deputy governors.

Myanmar is going through a period of dramatic reform after a military government stepped aside in 2011. Western governments have dropped or suspended sanctions, allowing foreign firms to move into what is practically a virgin market for many products.

Some local banks have resisted the arrival of foreign competition, saying they are at a big disadvantage because foreign lenders are far bigger in terms of capital, have better technology and much more experience in modern banking.

Lawmakers close to these bankers have tried to block the government's plan to allow selected foreign banks in but another senior official, who asked not to be named, said they appear to have lost.

"Since the president has set up this committee now, allowing foreign banks to operate is just a question of which. It's no longer a question of if. I'm sure it will happen before the end of this year," he said.

He added that local private banks should not worry because the foreign banks would only be granted limited licences.

"We do understand their concerns but, on the other hand, it's quite impossible to attract investment from big foreign companies if international banks are not allowed to operate here," he said.

Than Lwin, vice-chairman of top local private lender KBZ Bank and a former deputy governor at the central bank, said he was reassured by the fact that the foreign entrants would be restricted in their operations.

"Under the limited licence, these foreign banks will be allowed to open limited numbers of branches in limited areas to offer their customers limited banking products," he said.