Singapore is discussing the possibility of allowing virtual banks to operate in the city-state, the Monetary Authority of Singapore (MAS) said yesterday.
“MAS is studying whether to admit such digital-only banks with non-bank parentage,” the financial regulator said in an e-mailed reply to questions from Bloomberg News. “We have been engaging relevant stakeholders to ascertain the unique value that such entrants could bring to our banking landscape, and understand how potential risks will be managed and contained.”
The MAS said in the statement that digitalization is not new to Singapore’s banking industry, adding that local lenders have been allowed to pursue digital-only business models since 2000.
DBS Group Holdings Ltd (星展銀行), Oversea-Chinese Banking Corp (OCBC, 華僑銀行) and United Overseas Bank Ltd (大華銀行) all have digital strategies, and compete with home-grown financial-technology firms as well as the local branch networks of HSBC Holdings PLC, Citigroup Inc and other foreign banks.
DBS chief executive officer Piyush Gupta downplayed the competitive threat for the local banks of the possible entry of digital-only banks in a recent interview with Bloomberg News.
“To my mind, that’s just basically giving a few more banking licenses,” he said.
Gupta said he would only see a problem in Singapore if virtual banks are allowed to operate on more lenient terms than the incumbents, for example in terms of the capital they are required to hold.
“The real challenge is if the regulators create an unlevel playing field, and let the new bank licensees come in and do banking on different terms,” he said.
However, he said that most regulators “don’t seem to be inclined” to do that.
Virtual banks typically have lower operational costs than traditional lenders that rely on brick-and-mortar branch networks.
Last month, Gupta told DBS’ annual shareholder meeting that a new digital bank could generate US$100 of income from a cost base a little above US$30.
In contrast, DBS’ cost-to-income ratio stood at 44 percent last year.
OCBC, Singapore’s second-largest bank by assets, said that it is unavoidable that digital-only banks would want to operate in the city-state.
“However, the operating model of such banks cannot be a one-size-fits-all regardless of the operating environment” especially for a small, well-banked country like Singapore, OCBC chief executive officer Samuel Tsien (錢乃驥) said in an e-mailed reply to questions.
“Whilst it’s too early to speculate on MAS’s review, we welcome any initiative from the MAS that supports healthy competition and benefits consumers,” a HSBC spokesman said in an e-mailed response.
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