The issuance of five digital bank licences by Bank Negara Malaysia is not expected to challenge conventional banks in the short to medium term as it is still early days for digital banks, MIDF Research says.
It expects the licences to be issued by end-2020 and for the banks to be operational by 2021.
In addition, the types of banking products would be implicitly limited during the foundational years while conventional banks are already investing heavily to enhance its digital offerings. “Therefore, we maintain positive on banks currently with Maybank (buy, TP: RM10.30), CIMB and RHB (buy, TP: RM6.35) as our top picks,” it says.
In an exposure draft for the Licensing Framework for Digital Banks issued on Dec 27, the central bank says the digital banking licences to be issued can either be for conventional or Islamic banking business with an asset threshold of not more than RM2 bil in the initial three to five years of operations.
During the foundation years, licensed digital banks will be subjected to more simplified regulatory requirements relating to capital adequacy, liquidity, stress testing and public disclosure requirements.
Digital banks are not allowed to set up physical branches. The framework allows for the setting up of a head office to interface with Bank Negara or to manage customers’ complaints.
According to MIDF, the minimum capital required during the foundational phase – RM100 mil – is lower than current requirements but the RM300 mil thereafter is similar to the requirement for a locally incorporated foreign bank. Meanwhile the minimum total capital ratio requirement is the same as for existing traditional banks.
The research house believes that the capital requirements for digital banking are high enough to preclude start up, smaller fintech companies and e-money providers.
MIDF says prominent e-money providers such as Boost, Grab, Touch & Go and BigPay are the likely applicants for the digital banking licences as it will be a natural progression for them.
MIDF says CIMB, Affin, Hong Leong Bank, AMMB and Standard Chartered have shown interest in obtaining digital banking licenses. – Dec 30, 2019
