Competition for funding in the local banking scene is expected to heat up with the entry of new digital banks, which are expected to “aggressively” raise deposits to jump-start their operations.
Such a disruption, in turn, may add to the pressure on the incumbent banks’ net interest margins, especially as loan yields are already poised to decline after the Bangko Sentral ng Pilipinas (BSP) kicked off its easing cycle, Tamma Febrian, director at Fitch Ratings, told the Inquirer.
READ: Bangko Sentral to license 4 new digital banks
But Febrian nevertheless said the reopening of the local digital banking sector to new players would have a “modest” impact on the country’s banking industry in the near term, as the fresh entrants—like the existing virtual lenders—will remain relatively small in size in the foreseeable future.
“The additional digital banks will bring about increased competition in the banking sector, especially in the funding space as they are likely to aggressively compete for deposits in the early part of their operations,” Febrian said.
So far, digital lenders are seen doing a great job in raising deposits, a major lifeline for banks.
Data from the Digital Bank Association of the Philippines (DiBA PH), an industry group, showed the sector posted a 27-percent growth in their depositor base between September and December last year to P5.9 million, outpacing the 4 percent expansion in depositors recorded by the domestic banking system.
The BSP early this month announced it would reopen the application window for digital banking licenses starting Jan. 1, 2025, effectively lifting a three-year moratorium meant to assess the impact of the initial six players in the sector. The BSP said it would allow a maximum of 10 digital banks to operate in the country.
That said, the four new entrants would join the incumbent players, namely UNO Digital Bank, UnionDigital Bank, GoTyme, Overseas Filipino Bank of state-run Land Bank of the Philippines, Tonik Digital Bank and Maya Bank. INQ
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