Bad news lies ahead for small foreign-owned banks in Singapore, according to Moody’s, which believes that upcoming digital banks are expected to provide superior offerings at a lower price.
«The announcement by the [Monetary Authority of Singapore] that it will issue up to five new digital bank licenses is credit negative for small foreign-owned incumbent banks in Singapore,» said Simon Chen, vice president for financial institutions group at Moody’s Investors Service, implying a hit on the segment’s credit rating. «Their modest domestic franchises will face the greatest disruption risk from digital bank entrants.»
Singapore authorities recently announced that it would issue up to five digital banking licenses to bolster diversity and competitiveness in the local industry, amidst a global trend of digization across various sectors. It notes that in addition to the dominant local players like DBS, OCBC and UOB, smaller regional businesses like Maybank and ICBC have also been ramping up their digital efforts.
Asia too «Small and Less Strategically Important»
While the new initiative would «open doors» for fintech companies to showcase their abilities to leverage technology and data analytics, the Moody’s note said, headwinds await for foreign banks. Although they are in the process of digitization, they remain «small and less strategically important» to the overall business. «This means they are unlikely to benefit from ready access to digital investment.»
Traditional financial institutions aside, tech firms are also showing increasing interest in participating. Cross-border payment start-up InstaRem is preparing to apply for a license and gaming hardware manufacturer Razer is considering the option, according to reports. Just before the Singaporean regulator’s decision, Grab was also reportedly exploring a move into banking in the city-state, foreshadowing a more digital future for the sector.
