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Digital Banks. Financial access and solutions. Stability of financial system.

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P2P lenders. China. If we are to google for these two words, we will find many articles on the horrible things which had happened. Perhaps the monitoring from the central bank could have been better to prevent the general public from simply borrowing ever more money because the requirements are lower than traditional banks. Many simply could not get out of the debt hole they established after many months of spending spree, thinking that money will continue to be available.

They would just roll over their debts. Meanwhile in the traditional banking industry, we have so many complaints that banks are just too conservative. So, do we only continue with traditional banks? By the way, I personally think banks need to continue to evolve in order to survive. I am also of the opinion that digital banking licenses should be issued sooner rather than later. Singapore has announced that they will announce the winners of five digital banking licenses by June 2020. What about Malaysia then?

Article in themalaysianreserve.com . Bank Negara Malaysia (BNM) has issued the Exposure Draft on Licensing Framework for digital banks that forms part of the series of measures adopted by the bank to enable innovative application of technology in the financial sector. BNM said that it will be adopting a balanced approach to enable admission of digital banks with strong value propositions whilst safeguarding the integrity and stability of the financial system as well as depositors’ interest.

Up to five licences may be issued to qualified applicants to establish digital banks to conduct either conventional or Islamic banking business in Malaysia. BNM also said that an asset threshold of not more than RM2 billion will be applied within the initial three to five years of operations will be applied. With regards to minimum capital fund, BNM said, “On the minimum capital funds, digital banks will be required to maintain minimum capital funds unimpaired by losses of RM100 million during the foundational phase, and RM300 million thereafter.” Please read here for full Article in themalaysianreserve.com

I continue to have high regards for BNM. I think they have done a good job thus far even if some would prefer that the pace of these regulatory procedures be quickened. RM2 billion limit will enable these digital banks to offer their services and for the public and regulators to evaluate it without causing any huge instability to the banking financial system.

The requirement of minimum capital funds of RM100 million to RM300 million is needed which meant that the licensees would also needed to balance market share growth with profitability as well. By the way, this is definitely still within the sandbox phase and 5 should be good enough. Too few and we may not see enough competition and innovation. Too many and we may have made the cake too small for too many players. Yes, I will be happy to sign up and start depositing money as well as borrowing from them for my next property if their rates are great.

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