Digibank aspirants to show MAS updated proposals

Singapore

THE 21 digital bank applicants in Singapore will be scrubbing through numbers and updating them to show the Monetary Authority of Singapore (MAS) from this month how their businesses and finances have been impacted by the global pandemic.

While companies in other global markets have tried to showcase what is now known as "Ebitdac" - earnings before interest, tax, depreciation, amortisation and coronavirus - to suggest how their fundamentals would have been without the impact from the virus, MAS has signalled that financial strength is a priority when assessing these digital bank aspirants, with Covid-19 as one relevant factor.

In response to queries from The Business Times, an MAS spokesperson said on Wednesday: "As part of MAS's ongoing assessment process, eligible applicants are being invited to present their proposals to us.

"In addition, as set out in the application requirements, an applicant group's financial strength is one of the key considerations that MAS takes into account when assessing its ability to manage a prudent and sustainable digital banking business. MAS will consider all relevant information in making this assessment. This could also include relevant implications faced by applicants in view of the Covid-19 situation."

The spokesperson said MAS will be issuing an update in due course.

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Against the backdrop of a global pandemic, MAS had pushed back the assessment of the digital banks, with the results announcement postponed from June to the second half of the year.

A Fitch Solutions report in May noted the risk that has emerged for digital bank aspirants from the delays in awarding digital banking licences, given that this may have derailed expansion strategies. Global digital banking players were relying largely on geographical diversification to grow their revenues, it said.

Successful digital banking applicants, which have already invested into the development of their products for the local market, will also have to wait longer to monetise their products, Fitch Solutions said.

Seven of the applicants are gunning for the digital full bank licences, and the remaining 14 for the digital wholesale bank licences. BT reported in May that none have withdrawn from the race in spite of any business impact from Covid-19.

MAS also told BT in May it has not changed the number of digital bank licences to be awarded. It plans to issue up to two digital full bank licences, and up to three digital wholesale bank licences.

Still, with the Covid-19 outbreak drastically impacting business prospects across all sectors, the applicants must show that they can offer a sustainable way to expand beyond their current lines of business into the banking sector - the key criterion of the digital bank having a "path towards profitability" based on a five-year financial projection, for example, remains.

Digital full banks will be allowed to take retail deposits and will require an eventual capital requirement of S$1.5 billion.

In opening up applications in August last year, MAS had said that an applicant for the digital full bank should be able to meet the minimum paid-up capital of S$1.5 billion within three to five years from the start of business. Any exceptions will be made only for applicants that provide "strong justifications on the longer time required", MAS had said.

Digital wholesale banks with a capital requirement of S$100 million will focus on serving small and medium-sized enterprises and other non-retail segments.

Most of the digital banking applicants are consortia of entities that have match-made expertise in the areas of fintech, telco services and e-commerce, among other things.

These include ride-hailing firm Grab teaming up with telco giant Singtel; a Razer-led consortium; Temasek-linked supply chain finance firm Sheng Ye Capital tying up with PhillipCapital; and a consortium linked to OSIM's founder.

Alibaba's Ant Financial and New York-listed consumer Internet company Sea Group are among those that have gone solo with their applications.

In response to queries on how the Grab-Singtel consortium is meeting the requirements as part of an updated process due to the pandemic, a spokesperson said Grab and Singtel are "committed" to their plans to secure a digital full bank licence.

"Grab and Singtel are committed to creating a next-generation digital bank that will provide a differentiated experience for our customers and partners and we await the results of our digital bank application," said a spokesperson.

"Improving access to simple and affordable financial services across South-east Asia is at the heart of what we are trying to achieve, and we look forward to continuing to work together to make this a reality."

Fitch Solutions pointed out that this current environment of low interest rates and weak loan demand given poor growth, can spell trouble for digital-only banks. "A lower global interest rate environment lowers the overall interest rates that digital banks can feasibly offer on deposits, meaning that their deposit products will be less attractive, given the smaller differential when compared to traditional banks. At the same time, loan values are also expected to slump."

Smaller and less capitalised digital banks may struggle to find liquidity in these times, the report noted. Amid this, digital banks both big and small will have to contend with a "trust gap" that remains between digital banks and their incumbent rivals as well.

"It remains unclear whether digital banks will significantly cannibalise the business of traditional banks," Fitch Solutions said.

"The contagion has also forced the retail banking sector to embrace a digital-first mindset, and innovate further to improve their existing products, which could put further pressure on digital-only players."