BSP digital banking regulation expected to be ready this month

Central bank guidelines on the establishment of digital banks are expected to be approved this month, according to an official at Bangko Sentral ng Pilipinas (BSP).

BSP Deputy Governor Chuchi G. Fonacier said the circular will be sent to the Monetary Board in the coming weeks. The draft circular that has been sent to the banking community for comment amid the COVID-19 outbreak is in its final review and analysis.

“The circular on digital banking is not yet approved, we are still in the process of evaluating the comments received from external stakeholders. But we are aiming for presentation to the Monetary Board in September, “said Fonacier.

According to the draft circular, the BSP may subject a digital bank to a higher minimum capital requirement and capital ratio based on its assessment of the digital bank’s risk profile and market scope, but the proposed minimum capitalization it is P400 million for a basic digital bank. and P900 million for an anticipated digital bank. The difference between the two is that an advanced digital bank can serve large companies, while a basic digital bank is limited to micro, small and medium-sized enterprises (MSMEs). An advance digital bank can also issue credit cards and other BSP-approved activities.

“We believe that regulations for digital banks are intended to foster financial inclusion by lowering barriers to entry. Less burdensome capital requirements in the early years will likely make inclusive finance more viable and promote faster growth in underserved regions, ”S&P Global Ratings said in a Sept. 10 report,“ Philippine Banks on the Cusp of a digital revolution ”.

“In particular, a Philippine digital bank needs only P900 million of paid-up capital. This is in contrast to the minimum paid-up capital requirement for a universal or commercial bank in the Philippines, which could range from P2 billion to P20 billion, depending on the size of the branch network. For reference, the minimum capital requirement for a full digital bank in Singapore is S $ 1.5 billion (P53 billion), ”said S&P Global.

“Unlike markets like Singapore, where digital banks operate on a headline-level regulatory playing field, the central bank will likely give digital banks in the Philippines several years to meet minimum capital and liquidity requirements,” he added the credit watcher.

S&P Global said it can take three to five years for digital banks to become profitable as they “scale in markets largely ignored by the big lenders.”

“We believe that BSP could follow a phased implementation of digital banks, giving them some time to wait before bringing regulations on par with universal and commercial banks,” the report said.

Like domestic corporations, a foreign individual or non-bank corporations could establish a digital bank, but ownership will not exceed 40 percent of the voting shares. However, foreign banks rated by the BSP could control up to 100 percent of the voting shares of a digital bank.

The BSP describes digital banks as a basic bank or an advanced digital bank that offers financial products and services through a digital platform or electronic channels and is not allowed to install a branch or a lite branch unit.

Basic digital banks will have MSMEs as clients and will accept deposits such as savings, time deposits and deposits in foreign currency. They can make unsecured loans, collect and pay the bill of others, provide remittance and bill payment services, and issue electronic money products. An advanced digital bank can perform all basic digital banking services for retail clients, MSMEs and large companies or other corporate clients.

“The traditional banking sector makes loans primarily to large conglomerates and the wealthy masses, leaving the market for low-cost unsecured loans open to digital participants. We expect traditional and digital banks to coexist, serving different segments of the economy, ”S&P Global said in the report.

S&P Global noted that local bank lending to MSMEs has fallen to a minimum of seven percent of total lending from 16 percent in the past 10 years, and well below the minimum BSP requirement of 10 percent. hundred. “Philippine regulators want banks to bring their services to more people, and digital banking may be the answer,” he said.