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Traditional banks can compete with digital banks: Fitch

August 26, 2021 - Thursday 8:08 PM by GDM

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Conventional lenders are capable of competing with digital banks, which are unlikely to disrupt the local banking system, Fitch Ratings said Thursday.

“The leading banks already have large customer pools, sufficient investment resources and tend to be connected to their customers across multiple product relationships that put them in good stead to compete,” Fitch said in a commentary sent to reporters on Thursday.

“We maintain that the major rated Philippine banks have well-entrenched banking franchises and adequate resources to adapt to the potentially disruptive entry of neobanks,” it added.

The BSP already gave digital banking licenses to five players and is currently evaluating two more applications.

As it is, Fitch said traditional banks are expected to be protected from potential “destructive competition” from virtual lenders, thanks to the cap imposed by the Bangko Sentral ng Pilipinas that limits the initial number of digital banks that may operate in the country to seven.

The limit on the number of players is matched with a three-year moratorium on new applications to give the BSP enough time to examine the impact of digital banks on the country’s financial system.

According to Fitch, the Philippines, together with Indonesia and Vietnam, is an attractive banking market for digital bank aspirants in Southeast Asia because of its large unbanked population and lucrative lending spreads. 

“We believe BSP's imposition of a license cap is motivated by a regulatory philosophy of promoting innovation and financial inclusion without introducing destructive competition into the sector,” Fitch said.

“Moreover, an entrant needs to demonstrate sustainable financial viability in its business plan, which would reduce its ability to undertake predatory pricing and seize market share from incumbents,” it added.

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