An applicant digital bank in the Philippines will be required to have a minimum capitalization of P1 billion, according to a revised Bangko Sentral ng Pilipinas (BSP) proposed guidelines on the setting up of digital banks.
This was higher than earlier proposed of P400 million for a basic digital bank and P900 million for an advance digital bank.
The revised proposed circular also included a transitory provision where existing banks can convert to become a digital bank provided it will comply with requirements and submit an “acceptable” transition plan to the BSP.
BSP Deputy Governor Chuchi G. Fonacier said the circular for the establishment of digital banks has been released for review and comments by industry players. “This week is the period of exposure for the circular for comments by all stakeholders,” she said. Feedback deadline is October 12.
According to Fonacier, “this is the second round of comments since we need to consider inputs/comments received during the first round.”
In the proposed circular, any existing banks applying to shift to digital banking should complete conversions three years from the circular effectivity, including the closure of branches or branch lite units which should be within six months after the BSP has approved the application for conversion.
“In the case of an existing bank with up to sixty percent of its voting stock is held by a foreign individual or non-bank corporation, such stockholding may be retained or reduced, but once reduced, shall not be increased thereafter beyond forty percent of the voting stock,” said the BSP. In addition, the BSP said that once the notice of approval of conversion is received, the applicant bank will “no longer engage nor renew transactions under authorities not associated with those allowed for a digital bank.”
The BSP’s take on digital banking has also changed in that it no longer considers a distinction between a basic or advance digital bank and merged the two into a version of what an advance digital bank should be. In the first draft circular which was released last July, a basic digital bank is limited to servicing micro, small and medium enterprises while an advanced digital bank can do the same thing plus issue loans and credit cards.
The BSP said a digital bank is still confined to a digital platform and/or electronic channels “with minimal to no reliance” on physical touchpoints. It will not have a branch or branch-lite unit but it can offer offer financial products and services through cash agents and other delivery partners. However it will be required to keep a head office in the Philippines as its main point of contact and as a “central hub for receiving and resolving customer complaints.”
The BSP now describes a digital bank as performing the following, without distinctions: grant loans, whether secured or unsecured; accept savings and time deposits, including basic deposit accounts; accept foreign currency deposits; invest in readily marketable bonds and other debt securities, commercial papers and accounts receivable, drafts, bills of exchange, acceptances or notes arising out of commercial transactions.
A digital bank can also act as correspondent for other financial institutions and collection agent. It can issue these: electronic money products; credit cards; buy and sell foreign exchange; and present, market, sell and service microinsurance products. These banks can also open current or checking accounts, act as collection agent for government entities and “other activities as may be allowed by the Monetary Board.”
Foreigners – individual or non-bank corporation – can own or control up to 40 percent of a digital bank, the same rule of ownership applied to big banks and thrift banks.
The proposed application fee for a digital bank is P250 million compared to P400 million for commercial banks and P500 million for universal banks. It is higher than a thrift bank’s application fee of P100 million for a head office in the National Capital Region.
In the proposed guidelines, the BSP said it “recognizes the role of digital platforms in driving greater efficiency in the delivery of financial products and services and in expanding reach into the unserved and underserved market segments.”
It said it has developed a framework for digital banks as a distinct classification of banks and that the “adoption of a digital banking business model should be underpinned by robust, secure and resilient technology infrastructure, effective data management strategy and practices, and sound digital governance.”