MANILA, Philippines — The entry of digital banks is unlikely to cause any major disruptions to the local financial system and affect the ratings of traditional lenders, which are strong enough to compete, Fitch Ratings said Thursday.
The Bangko Sentral ng Pilipinas is limiting the number of digital banks to seven, with five already given licenses and two others being evaluated. The cap is in tandem with a 3-year moratorium on new applications, something that, Fitch said, “is favorable for existing banks”.
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“The leading banks already have large customer pools, sufficient investment resources and tend to be connected to their customers across multiple product relationships that put them in good stead to compete,” Fitch said.
“We maintain that the major rated Philippine banks have well-entrenched banking franchises and adequate resources to adapt to the potentially disruptive entry of neobanks,” it added.
Becoming a full-fledged digital bank is a three-stage process that begins with the Monetary Board’s approval of license applications. So far, licenses have been given to UNObank, UnionDigital Bank, GoTyme, Overseas Filipino (OF) Bank of state-run Land Bank of the Philippines, and Tonik Digital Bank.
BSP did not name the two applicants being evaluated, but companies that earlier expressed interest to join the industry are Lucio Tan-owned Philippine National Bank, PayMaya’s Voyager Innovations and Yuchengco-owned Rizal Commercial Banking Corp. Starting September 1, the central bank will no longer entertain new applications.
Central bank Governor Benjamin Diokno is hoping that digital banks can assist the BSP in achieving its goal of shifting 50% of total retail transactions in the Philippines to digital channels and raise the number of Filipino adults with bank accounts to 70% by 2023.
For Fitch, digital banks with large existing user base and have “deep pocketed shareholders” that can sustain heavy capital investments during the breakeven period are likely to succeed in the industry.
“We believe BSP's imposition of a license cap is motivated by a regulatory philosophy of promoting innovation and financial inclusion without introducing destructive competition into the sector,” the credit rating agency said in a commentary.
“Moreover, an entrant needs to demonstrate sustainable financial viability in its business plan, which would reduce its ability to undertake predatory pricing and seize market share from incumbents,” it added.