The Bangko Sentral has shown once more its being pro-active in technology, true to its vision of being world-class, when it recently issued the Circular authorizing the setting up of digital banks in the country. It aims to bridge the gap between banking and the unbanked segment of the economy and thereby, in the words of BSP Governor Benjamin Diokno, “leap-frog our financial inclusiveness agenda”.
The creation of digital banks is an innovation based on the foresight of Congress. It is not included among the classes of banks enumerated under the General Banking Law. Banking is however dynamic and, for this reason, the said law authorized the Bangko Sentral to create other types of banks as may be called for under modern times.
Digital banking is mainly technology-based as a digital bank will render banking services that are processed end-to-end through a digital platform with minimum or no reliance at all on physical touchpoints. It shall operate from only one site and will not be allowed to have branches. This calls to mind what Bill Gates said then that the brick-and-mortar banks will eventually become the dinosaurs of the future.
A digital bank would still perform the normal services of a bank like acceptance of deposits, the grant of loans, issuance of credit cards, buying and selling of securities, foreign currency trading, and acting as a correspondent bank or as a collection agent. An existing bank can convert itself into a digital bank subject to compliance with capital and nationality requirements. The required minimum capital is P1 billion and, if a bank’s present capital is less than that amount, it can program its capital increase within three years. If the applicant bank also has existing branches, it will be required to dispose or close such branches since these will already be deemed redundant.
The nationality requirement limits foreign ownership up to 40% of the voting stocks. If an applicant bank has foreign equity in excess of this ceiling, the excess will be allowed, but once it is reduced, it cannot be increased again beyond 40%. To adapt to all the requirements of a digital bank, an existing bank would have to amend its articles of incorporation and submit it for approval of the SEC.
Branches of foreign banks established in the Philippines may also became digital banks and they will not be required to incorporate as a banking corporation under Philippine law. This is because their branch license already allows them to perform banking services in the Philippines. But they would have to comply also with the other requirements for a digital bank.
As a digital bank is technology-driven, the Bangko Sentral may require some members of its board and management to have track records in operating a business in the field of e-commerce or technology. This is to assure that there is adequate competency within the bank. It is also understood that a digital bank has to adhere to existing bank policies on corporate governance, risk management, internal controls, anti-money laundering and anti-terrorist financing.
Digital banks would constitute a distinct type of banking. It means that banking supervisors would have to be attuned to the digital examination of such banks. Knowing the competencies within the Bangko Sentral, it can be assured that when it enacted the Circular on digital banks, it has already laid down the groundwork for their efficient supervision.
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The above comments are the personal views of the writer. His email address is [email protected]