Use fintech, thrift banks urged

The country’s chief bank regulator is urging smaller financial institutions to use technology to be able to compete with larger rivals, while simultaneously guarding against cybercrime risks that highly “digitalized” banking brings.

Speaking to the umbrella organization of thrift banks last week, Bangko Sentral ng Pilipinas Governor Nestor Espenilla Jr. said financial technology offered substantial opportunities for small firms to innovate products and services that could transform the local economy.

“Thrift banks can take advantage of these opportunities,” he said. “Smaller institutions can leverage on cloud technology and shared services to lower operational costs.”

Thrift banks are savings and mortgage banks, private development banks, stock savings and loan associations and microfinance thrift banks, capitalized with at least P800 million for those headquartered outside Metro Manila and P2 billion for those based in the capital. Thrift banks are primarily engaged in accumulating savings of depositors and investing them, and providing short-term working capital and medium- and long-term financing to smaller businesses.

The BSP chief noted that one rural bank had already launched a pilot project on cloud-based core banking solution.

“Thrift banks can certainly leverage on similar solutions,” Espenilla said. “The opportunities are huge. However, the risks have to be carefully considered and managed.”

While urging the banks to adopt greater levels of technology, however, the central bank chief reminded them of the risks and “unintended consequences” of financial technology innovations.

As such, the BSP has put in place regulations to help combat potential ill effects of greater technology use in banking.

These include an enhanced antimoney laundering regulatory frameworks; more efficient know-your-customer rules that make it easier for low-risk accounts to conduct business; allowing banks to use third party cash agents as a cost-efficient service delivery channel; allowing the use of virtual currencies for remittances; rules to help manage risks from social media; and providing for an enhanced information security framework to consider cybersecurity controls.

The central bank chief noted the key role played by thrift banks in the local economy, with the industry having resources of P1.17 trillion at end-2017, mostly funded by retail deposits.

Thrift banks are a big source of funding support for small businesses, real estate development and consumer finance, with a loan portfolio equivalent to about 71 percent of industry assets.

Thrift banks have an average nonperforming loan ratio of only 4.7 percent and a bad loan coverage ratio of 67 percent.