New bank applicants that are proposing to operate business models that looked like digital banks will be approved as digital banks, according to a Bangko Sentral ng Pilipinas (BSP) memo released on Tuesday clarifying the new circular on the establishment of digital banks.
BSP Deputy Governor Chuchi G. Fonacier released BSP Circular Letter No. CL-2021-006 or “Clarification on the Guidelines on the Establishment of New Banks” to explain that even if new bank applicants have not stated which of the seven bank license category they are applying for, the BSP will assign them the category that fits their proposal.
“This is to inform all prospective applicants for new banks that the BSP has issued the ‘Guidelines on the Establishment ol Digital Banks’ as embodied under Circular No. 1105 dated December 2, 2020. (And this circular) provides the regulatory framework for the establishment of digital banks and recognizes such as a distinct classification of banks,” said Fonacier in the memo.
Circular No. 1105 has defined what a digital bank is which “clearly distinguish it from the other types of banks,” she also said.
“In this respect, new bank applications with business model that essentially meets the definition of a digital bank shall be treated and evaluated as digital banking license applications, regardless of the type of bank indicated in the application,” said Fonacier.
She also reminded new bank applicants to comply with the prudential requirements for the establishment of a digital bank.
Digital bank is the BSP’s seventh bank category. Digital banks will have minimal or zero-reliance on physical touchpoints but it will have to set up one office in the Philippines to receive and address customer complaints or issues.
Based on the circular, the BSP may require all banks with digital banking services to apply for the appropriate digital bank license as per its transitory provision.
The circular also said that “only a bank that is granted a digital banking license may represent itself to the public as such in connection with its business name.”
The circular also directed existing banks converting to digital banks to make the transition within three years from date of acquiring a Monetary Board approval.
A digital bank license has a required capitalization of at least P1 billion, and they have to implement the transition plan, including divestment or closure of branches or branch lite units, within three years.
Fonacier said earlier that there are five banks that will apply for digital bank license.
The BSP describes a digital bank as performing the following: grant loans, whether secured or unsecured; accept savings and time deposits including basic deposit accounts; accept foreign currency deposits; and invests 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 bank for other financial institutions and as collection agent. It can issue these electronic money products, credit cards and buy and sell foreign exchange. It can also present, market, sell and service microinsurance products.