At least five banks are expected to apply for digital bank license this month, the first batch of applicants after the Bangko Sentral ng Pilipinas (BSP) approved the digital banking framework last week.
“So far, about five have signified intention to apply for a digital bank license,” said BSP Deputy Governor Chuchi G. Fonacier. Digital banks are banks that will have no physical presence and will rely only on an all-digital platform and/or electronic channels in offering financial products and services.
The approved circular for the guidelines on the establishment of digital banks have yet to be released on the BSP website, but Fonacier has confirmed that the proposed P1 billion minimum capitalization is in the approved version. This is still smaller compared to the minimum capitalization for commercial banks which is P2 billion and P3 billion for universal banks. Thrift banks’ capitalization is P500 million to P2 billion depending on branches and locations.
The P1 billion capitalization was in the second proposed circular which was circulated for industry comments in October.
The initial proposed minimum capitalization was P400 million for basic digital banks and P900 million for advance digital banks. 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 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 micro-insurance 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.”
The second version of the proposed circular 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.
Conversions should be completed three years from the circular effectivity, including the closure of existing branches or branch lite units which should be within six months after the BSP has approved the application for conversion.
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.
BSP Governor Benjamin E. Diokno has said that because of the number of banks that have expressed interests to apply for digital bank license, they may limit the number of approved licenses, based on their assessment of the condition of the banking system.
The BSP said they will only review applications from banks and non-banks that have sound digital governance, robust, secure and resilient technology infrastructure, and effective data management strategy and practices.