Singapore studying whether to allow digital-only banks


SINGAPORE • Singapore is discussing the possibility of allowing virtual banks to operate in the city-state, the Monetary Authority of Singapore (MAS) said yesterday.

“MAS is studying whether to admit such digital-only banks with non-bank parentage,” the financial regulator said in an emailed reply to questions from Bloomberg News.

“We have been engaging relevant stakeholders to ascertain the unique value that such entrants could bring to our banking landscape, and understand how potential risks will be managed and contained.”

The MAS review comes as regulators around the world grapple with the rise of financial technology (fintech) and the implications for the banking system.

Earlier this year, Hong Kong started issuing virtual banking licences as a way to shake up retail lenders and compete better with regional economies such as China and India.

Among the firms to receive Hong Kong permits, three have partnered financial institutions such as Standard Chartered plc, BOC Hong Kong Holdings Ltd and ZhongAn Online P&C Insurance Co.

Fintech firm WeLab Holdings Ltd has also received a Hong Kong banking licence.

The new entrants are targeting a market dominated by HSBC Holdings plc, which has a leading share of local retail and corporate lending, mortgages and credit cards.

In its statement, the MAS said digitalisation isn’t new to Singapore’s banking industry, noting that local lenders have been allowed to pursue digital only business models since 2000.

DBS Group Holdings Ltd, Oversea-Chinese Banking Corp (OCBC) and United Overseas Bank Ltd all have digital strategies, and compete with homegrown fintech firms, as well as the local branch networks of HSBC, Citigroup Inc and other foreign banks.

DBS CEO Piyush Gupta downplayed the competitive threat for the local banks of the possible entry of digital-only banks in a recent interview with Bloomberg News.

“To my mind, that’s just basically giving a few more banking licences,” he said.

In the interview, Gupta said he’d only see a problem in Singapore if virtual banks are allowed to operate on more lenient terms than the incumbents — for example, in terms of the capital they are required to hold.

“The real challenge is if the regulators create an unlevel playing field, and let the new bank licensees come in and do banking on different terms,” he said.

But he said most regulators “don’t seem to be inclined” to do that.

Virtual banks typically have lower operational costs than traditional lenders that rely on brick-and-mortar branch networks.

Last month, Gupta told DBS’ annual shareholder meeting that a new digital bank could generate US$100 (RM415) of income from a cost base a little above US$30.

In contrast, DBS’ cost-to-income ratio stood at 44% last year.

OCBC, the country’s secondlargest bank by assets, said it’s unavoidable that digital-only banks will want to operate in Singapore.

“However, the operating model of such banks cannot be a one-size-fits-all regardless of the operating environment” especially for a small, well banked country like Singapore, OCBC CEO Samuel Tsien (picture) in an emailed reply to questions.

“While it’s too early to speculate on MAS’ review, we welcome any initiative from the MAS that supports healthy competition and benefits consumers,” a HSBC spokesman said in an emailed response. — Bloomberg