However, the tech upstarts hardly pose a challenge to the Big Three.
Small foreign-owned banks should brace for virtual newcomers threatening to steal their market share as the Monetary Authority of Singapore prepares to issue five new digital bank licenses, according to Moody's.
“[T]heir modest domestic franchises will face the greatest disruption risk from digital bank entrants," Simon Chen, Vice-President, Financial Institutions Group, Moody’s Investors Service said in a statement.
Although foreign banks have embarked on digital transformation plans, the extent of the disruption will still be felt given the digital dominance of local lenders. "[T]heir Singapore operations are small and less strategically important to the overall group. This means they are unlikely to benefit from ready access to new digital investment," he added.
"On the other hand, the impact on Singapore's three largest domestic banks will be manageable, because the three banks have led digitisation efforts in the ASEAN region and, consequently, have the technology to defend their dominant positions against the new fintechs," said Chen. In an interview with Bloomberg in May, DBS CEO Piyush Gupta downplayed the impact of the digital newcomers to existing banking operations.
Moody's estimates that digital banks will command around 2% of domestic banking system assets once they fully meet regulatory requirements and become fully operational.
The regulator earlier announced that it will be issuing up to two full digital banking licenses and three wholesale as part of an effort to liberalise the financial services sector that has long been dominated by the Big Three. Reuters reported that Grab is said to be exploring the possibility of entering the digital-banking space, posing a direct threat to entrenched market players. In a similar move, Hong Kong earlier issued a total of eight virtual banking licenses to firms including entities backed by tech giants like Tencent and Ant Financial as well as incumbent lenders like Standard Chartered and Bank of China.
Digital banks are also subject to an initial deposit cap of $50m, an individual depositor cap of $75,000, and generally be allowed to accept deposits from only a small group of depositors such as business partners, staff, related parties and selected customers.
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