More Digital Banks Eyed

The Bangko Sentral ng Pilipinas (BSP) may reopen the window for digital bank license applications sooner than expected once it has assessed that the digital bank market needs to expand.

Photo Insert: The establishment of a digital bank requires a P1 billion minimum capitalization.

“I think pretty soon we’ll be able to allow more digital banks,” said BSP Governor Eli M. Remolona in a recent foreign investors’ briefing.

The BSP has closed the window for digital bank applications for three years, or from September 2021 until the fourth quarter of 2024. Only six digital banks have been granted a digital bank license by the BSP as of Aug. 31, 2021.

“We’ve limited to six, for now, the number of licenses for digital banks. To allow us to catch up with the technology,” said Remolona. However, almost two years since the application window was closed, the BSP is studying its reopening earlier than scheduled. “We’re expanding our capacity to work with digital banks,” said the new BSP chief.

The establishment of a digital bank requires a P1 billion minimum capitalization. A digital bank is the BSP’s seventh bank category. Digital banks will have minimal or zero reliance on physical touchpoints but they will have to set up one office in the Philippines to receive and address customer complaints or issues.

The BSP has limited the number of digital banks to allow them the space to closely monitor the performance and impact of digital banks on the banking system and their contribution to the financial inclusion agenda.

The six digital banks currently in operation are: government-owned Overseas Filipino Bank Inc. of Land Bank of the Philippines; Tonik Digital Bank of Tonik Financial Pte Ltd. of Singapore; MAYA Bank of the PLDT Group; UNObank Inc. of Singapore; UnionDigital Bank of Aboitiz-led Union Bank of the Philippines; and GoTyme Bank Corp. of the Gokonwei Group’s Robinsons Bank.

The most recent regulatory changes that BSP has implemented relating to digital banks was the September 2022 clarification on prudential requirements, licensing, and documentation.

The BSP’s policy making-arm, the Monetary Board, approved Circular No. 1154 or the “Prudential Requirements Applicable to Digital Banks” on Sept. 14 which amended Circular No. 1105 or the “Basic Guidelines in Establishing Banks” issued last December 2020. The review of the draft circular took almost one year since it was first proposed and circulated among banks and non-banks in October 2021.

The circular basically allowed the central bank to consider applications to set up thrift, rural and cooperative banks that have digital bank business models as digital bank license applications.

These thrift banks, rural banks, and cooperative banks that primarily offer financial products and services that are processed end-to-end through a digital platform or electronic channels under an Advanced Electronic Payments and Financial Services (EPFS) license, will be required to put up P1 billion as capital to be granted a digital bank license.

Meantime, existing thrift banks, rural banks, and cooperative banks with similar digital platforms or electronic channels under EPFS license, will be given five years to meet the new minimum capital requirement or P1 billion for a digital bank license.

BSP Deputy Governor Chuchi G. Fonacier earlier clarified that the amended circular will not mean that there will be new digital bank licenses approved. The window for digital bank license applications is still closed for new applicants.

The circular also included a January 2021 clarificatory memo on new bank applicants. The memo previously explained that applicants that are proposing to operate business models that looked like digital banks will be approved as digital banks.

Before the BSP released the digital banking framework in 2020, there are already two existing digital banks in the country -- Malaysia’s CIMB and Dutch-owned ING. The two foreign banks, however, did not apply for a BSP digital bank license. The BSP issued Circular No. 1105 last December 2020 for the establishment of digital banks.

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