The Bangko Sentral ng Pilipinas (BSP) has approved changes in the establishment of digital banks and clarified prudential requirements, licensing and documentation.
The BSP’s policy making-arm, the Monetary Board, approved Circular No. 1154 or the “Prudential Requirements Applicable to Digital Banks” on Sept. 14 which amended Circular No. 1105 or the “Basic Guidelines in Establishing Banks” issued last December 2020. The review of the draft circular took almost one year since it was first proposed and circulated among banks and non-banks in October 2021.
The circular basically allowed the central bank to consider applications to set up thrift, rural and cooperative banks that have digital bank business models as digital bank license applications.
These thrift banks, rural banks and cooperative banks that primarily offer financial products and services that are processed end-to-end through a digital platform or electronic channels under an Advanced Electronic Payments and Financial Services (EPFS) license, will be required to put up P1 billion as capital to be grated a digital bank license
Meantime, existing thrift banks, rural banks and cooperative banks with similar digital platform or electronic channels under EPFS license, will be given five years to meet the new minimum capital requirement or P1 billion for a digital bank license
“These banks shall submit to the Bangko Sentral an acceptable capital build-up program within six months from the date of effectivity of this circular,” according to the BSP.
The BSP has closed the window for the submission of applications from new digital banks, including converting banks, last Aug. 31, 2021 until Dec. 2024.
BSP Deputy Governor Chuchi G. Fonacier had earlier clarified that the amended circular will not mean that there will be digital bank licenses approved. The window for digital bank license application is still closed for new applicants.
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 circular also included a January 2021 clarificatory memo on new bank applicants. The memo previously explained that applicants that are proposing to operate business models that looked like digital banks will be approved as digital banks.
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 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 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.
The BSP granted only six digital bank license last year.
As of August this year, the six digital banks are operational. Of the six, three are fully operational while the other three are on a limited run.
Government-owned Overseas Filipino Bank Inc. A Digital Bank (OFBDB), Tonik Digital Bank (TONDB) and MAYA Bank are fully operational. OFBDB is controlled by Land Bank of the Philippines while MAYA is a subsidiary of the PLDT Group. TONDB, meantime, is owned by Tonik Financial Pte Ltd. of Singapore.
UNObank Inc. (UBI), UnionDigital Bank (UDB) and GoTyme Bank Corp. (GTYME) have also started operations but on a limited capacity targeting select customers, said the BSP.
UBI, like TONDB, is Singaporean-owned. UDB is a unit of Aboitiz-led Union Bank of the Philippines while GTYME is a sister bank of Gokongwei group’s Robinsons Bank.
The BSP said that operating initially under limited capacity is a conservative approach adopted by these digital banks to “further ensure that all aspects of their digital operations are ironed out prior to fully launching their services to the public.”
UBI, UDB and GTYME are expected to publicly launch within the second half of this year, said BSP.
OFBDB, TONDB, UBI and MAYA were authorized to operate in the first quarter this year while UDB and GTYME were given the go-signal in July.