RETAIL BANKING: DIGITAL BANKS
The Malaysian central bank plans to award up to five digital licences this year.
Malaysia and Singapore’s small banks threatened as digital banks enter the fray Small banks could lose market share as digital newcomers target underserved segments.
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mall Malaysian banks are standing on shaky ground as Bank Negara Malaysia prepares to grant up to five digital banking licences this year. The entrance of digital players poses a threat to their market share given their modest franchises, according to a Fitch Ratings report, and digital banks may exploit their size and innovation to concentrate on underserved markets. The overall Malaysian banking sector has been struggling for the past few years, S&P Global Ratings analyst Rujun Duan told Asian Banking and Finance. The country posted slow GDP growth in Q4 2019 that was forestalled by overnight policy rate (OPR) cuts in January and March. The arrival of digital banks would only add more stress especially in terms of profitability, and adverse market trends and heightened competition would likely squeeze small banks, she said. Big fintech players such as ride-hailing company Grab and gaming firm Razer have all expressed interest in applying for a digital licence. Even traditional banks joined in on the fray: local banking giants with large footholds in the market such as Maybank, CIMB Bank, and Hong Leong are also reportedly eyeing a license.
8 ASIAN BANKING AND FINANCE | q2 2020
What makes small banks particularly at risk is their lack of market dominance to effectively defend themselves.
What makes small banks particularly at risk is their lack of market dominance to effectively defend themselves, noted Duan. “What’s more, their limited financial resources also mean that they will likely struggle to shoulder the ongoing heavy IT investments required to stay ahead of the competition,” she added. In addition, digital banks can push lending rates down and use their lack of physical presence to offer higher interest rates and attract deposits, according to S&P analyst Ivan Tan. They will also likely target the retail and SME markets, both of which are underserved and with high risk profiles, Fitch said. Similarly, Singapore’s small foreign-owned lenders are also under threat even if they are already in the process of digitisation, a Moody’s report revealed, due to their insignificant operations in the Lion City which render them unlikely to benefit from the access to new digital investments. On the other hand, the country’s small domestic banks, including Malayan Banking Berhad (Maybank) and Industrial & Commercial Banking of China (ICBC), have been taking advantage of a strong retail and SME customer base to cement their competitiveness, the report added. The Monetary Authority of Singapore (MAS) is
