The central bank has changed rules in the setting up of digital banks, according to a draft bank circular.
The draft circular seeks to consider applications to set up thrift, rural and cooperative banks with digital bank business models as digital bank license applications.
The proposed new guidelines for the “Prudential Requirements Applicable to Digital Banks” is currently out for industry feedback. Banks and non-banks have until October 22 to submit recommendations and comments to the Bangko Sentral ng Pilipinas (BSP).
The BSP has closed the window for the submission of applications from new digital banks, including converting banks, last Aug. 31. On Monday, Oct. 4, BSP Governor Benjamin E. Diokno announced that instead of limiting the number of digital banks to just seven, there will only be six digital banks operating in the country until the application window is reopened. The limit was trimmed from seven to six due to non-complying applicants. As such, the application window will stay close until December 2024 unless the Monetary Board lifts the moratorium before then.
BSP Deputy Governor Chuchi G. Fonacier clarified the draft circular however, as not to mean that there will be digital bank licenses approved through the issuance of the proposed circular. The window for digital bank license application is still closed for new applicants.
“Closure of the window for licensing of digital banks include closure as well of the window for existing banks to convert to a digital bank,” said Fonacier on Wednesday, Oct. 6.
The establishment of a digital bank require P1 billion minimum capitalization. To set up a thrift bank, the capitalization is P500 million to P2 billion depending on the location of branches. Rural bank capitalization starts at P10 million up to P200 million if setting up branches within the National Capital Region.
The draft circular stemmed from a January 2021 clarificatory memo on new bank applicants. The BSP has said in the memo that applicants that are proposing to operate business models that looked like digital banks will be approved as digital banks.
BSP Circular Letter No. CL-2021-006 or “Clarification on the Guidelines on the Establishment of New Banks”, signed by Fonacier, said 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.
A 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.
Fonacier in the memo said the BSP may require all banks with digital banking services to apply for the appropriate digital bank license as per its transitory provision. She 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 six new digital banks are the following: Overseas Filipino Bank (OF Bank) of Land Bank of the Philippines (its license was approved on March 25, 2021); Tonik Bank of Singapore (June 3); UNObank of Singapore (June 3); UnionDigital of Union Bank of the Philippines (July 15): GOtyme of Robinsons Bank Corp. (Aug. 12); and Maya Bank, owned by PayMaya of PLDT Inc. (Sept. 16).
Of the six, only OF Bank and Tonik Bank are already operating as digital banks while the rest are expected to fully set up their operations within six months or less.
Approved digital banks are given a year to complete pre-operating requirements and commence banking operations. Existing banks converting to digital banks should complete the transition within three years from date of acquiring a Monetary Board approval.
The BSP has limited the number of digital banks to allow them the space to closely monitor the performance and impact of digital banks to the banking system and their contribution to the financial inclusion agenda.
Diokno has said that BSP needs to ensure that there is healthy competition among banks to encourage the development of innovative and competitive financial products and services.