Fintech
BSP to Reopen Digital Banking License Applications After Three-Year Break
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The Bangko Sentral ng Pilipinas (BSP) will resume accepting applications for the country’s digital banking license after three years, a move that opens the sector to more players as it works toward profitability.
The number of slots available for digital banking license applications remains unclear, but BSP Governor Eli Remolona Jr. informed the Philippine Daily Inquirer that a circular on this issue will be published “soon”.
This decision follows the BSP’s initial assessment of current players, including UNO Digital Bank, UnionDigital Bank, GoTyme, Overseas Filipino Bank of the state-run Land Bank of the Philippines, Tonik Digital Bank, and Maya Bank. The central bank indicated that an industry report will be published this year.
Governor Remolona observed that “many are interested” in joining the local digital banking sector, with companies eager to the BSP to reopen the questions.
The initial three-year moratorium on digital banking permits, imposed in 2021, has allowed the regulator to monitor the performance of these new lenders and their impact on the financial system.
Digital banks, which leverage mobile technology and artificial intelligence, primarily serve unbanked Filipinos with largely untested credit profiles. Last March, the BSP reported that only two of the six digital banks in the country were profitable, predicting a five-seven year timeline for digital banks to become profitable. Globally, only 5% of digital banks are currently profitable, according to the central bank.
The sector’s struggle for profitability is largely due to its lending activities. Recent BSP data showed that in May, P4.9 billion of digital banks’ total loan portfolio was considered non-performing, meaning more than 90 days late on a payment, with a gross non-performing loan (NPL) ratio of 20.64%, up from 17.69% the previous month.
This NPL ratio is significantly higher than the 3.57% recorded for the entire local banking sector, which consists mainly of traditional banks serving affluent segments with consolidated credit profiles.
This high level of bad debt is forcing digital banks to allocate a substantial portion of their capital as a buffer against losses from unpaid loans, limiting the funds available for new lending activities. As a result, the high provisioning adds to their already high expenses.
Despite challenges with NPLs and profitability, digital banks are showing strong performance in increasing deposits. Data from Digital Banks Association of the Philippines (DiBA PH) revealed that the sector recorded a 27% growth in its depositor base between September and December 2023.
This growth contrasts with the overall banking system growth of 4%, which will bring the total digital banking depositor base to 5.9 million by the end of 2023.
Featured image credit: edited by Free image