Competitive Dynamics in Banking Intensify Across APAC: S&P Global

Indigenous virtual banks, global digital-only banks, and digitised traditional banks are all vying for market share, says a new report from S&P Global Ratings.

Virtual banking is intensifying the competitive dynamics across APAC, with new indigenous virtual banks, global digital-only banks and digitised traditional banks all vying for market share, according to a new report from S&P Global Ratings.

The report notes developments in several APAC jurisdictions, where new indigenous entrants have either already begun operating or are expected to become functional in the next year or so.

The report highlights:

  • Hong Kong, where eight new virtual bank licences have been issued
  • China, where bigtechs Tencent, Alibaba, Xiaomi and aiBank have already entered the banking space
  • Taiwan, where the first virtual bank licence its expected to be approved this month, and launch by end-2020
  • Singapore, where plans have been announced to issue up to five digital bank licences
  • Malaysia, where a regulatory framework for virtual banks is in the works
  • India, which will likely launch digital banking products and services through its regulatory sandbox
  • Japan, where a joint venture between Mizuho and social media giant LINE suggest movement towards virtual banking
  • Korea, which has two digital banks and plans to allow applications from new potential licensees
  • Australia, which has established the ‘restricted ADI‘ licence approach as a pathway for new digital banks

S&P expects this trend to continue as more banking regulators across the region develop the infrastructure to manage and supervise virtual banks.

This will in part be driven by the sheer size of underbanked populations in emerging markets – including China, India, Indonesia, Pakistan and Bangladesh – with added stimulus from increasing mobile penetration, a key enabler for digital banking success.

Virtual banks are also seeing various levels of encouragement from regulators, such as in Korea, where the regulator has allowed a two- to three-year grace period before Basel III regulations apply. Meanwhile in Australia, the restricted ADI licence provides new entrants time to achieve their full capabilities and resources before full banking licence conditions apply.

Alongside developments in the virtual banking space, ex-regional players (such as UK-based Revolut) are expanding in Asia-Pacific, while traditional banks are accelerating their electronic and digital banking strategies “in the race for digital supremacy and a competitive edge”.

Some traditional banks are corralling digitisation strategies under their own brands, while others use partnerships to expand into new markets with digital-only arms. Examples of the latter include UOB’s expansion into Thailand, CIMB Bank’s entry in the Philippines, and China CITIC Bank’s expansion into online finance through a partnership with search giant Baidu.

S&P’s analysis points to intensifying competitive dynamics affecting APAC banking. While outlook changes for banks in the region are not expected in the next two years, the “potential for ratings differentiation is greater” over a longer term horizon, it says.

The full report is available to S&P subscribers here.



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