Little disruption expected
The dawn of digital banking is positive in that it broadens the breath of
banking options to both consumers and small businesses, and we think that
they will eventually serve to complement rather than compete with the
incumbent conventional banks. If anything, there could be heightened
deposit competition in the short term, but we do not anticipate much
disruption to the operations of the latter. POSITIVE maintained on the
sector with BUYs on HLBK, RHB, AMMB, ABMB, HLFG and BIMB.
3 conventional, 2 Islamic digital licenses
BNM has awarded three conventional digital banking licenses to: a) Boost
Holdings/RHB Bank, b) GXS Bank (the Grab-Singtel consortium)/Kuok
Brothers, c) Sea Ltd (parent company of Shopee)/YTL Digital Capital and
two Islamic digital banking licenses to d) AEON Financial Service/AEON
Credit Service/Money Lion and e) the KAF Investment Bank consortium.
Unbanked population not large
According to BNM, the unbanked population in Malaysia stands at just
about 8%, which does not seem large, in our view. In the consumer space,
we think that the digital banks should focus on wealth management
products such insurance/unit trusts, and on creating a virtual financial
ecosystem from which they can tap more lucrative fee income. They
should also tap into the small- to mid-sized SMEs in the country, which
would be a higher-yielding segment. The latter could pose some
competition to ABMB, which focuses primarily on smaller SMEs, but what
ABMB has to offer to SMEs that will take time to replicate would be a team
of dedicated relationship managers and much experience in this space.
Limited competition expected
A digital bank will undergo a period of operational readiness that will be
validated by BNM, a process that is expected to take between 12 and 24
months. It has to maintain an initial minimum capital of MYR100m, which
rises to MYR300m after 3 years, and a total capital ratio of 8%. During the
foundational phase (min of 3 years, max 5 years) its total asset size cannot
exceed MYR3b. Moreover, the bank is expected to hold Level 1 and Level
2A high-quality liquid assets, equivalent to at least 25% of its total onbalance sheet liabilities. These financial criteria serve to ensure that some
level of financial discipline is maintained while ensuring that the digital
banks expand at a controlled space. What it does mean as well, however,
is that the conventional banks are unlikely to face any significant
competition in the medium term, while affording them time to ramp