Crypto-dealing banks face reputational risk
Union Bank of the Philippines (UnionBank), along with other Southeast Asian banks that are delving deeper into cryptocurrency, might face growing reputational, operational and even financial risks over time, according to Fitch Ratings.
The credit rating firm said in a statement, however, that these bank’s growing engagement in cryptocurrency financial services was unlikely to affect their credit profiles substantially in the near term.
In July 2019, UnionBank launched its in-house peso-denominated stable coin dubbed PHX on its i2i platform, which connects rural banks to one another and to UnionBank itself.
Stablecoins, most of which have been designed to be equal to the US dollar, are cryptocurrencies that were intended to minimize price volatility.
PHX, because it uses blockchain—the technology behind cryptocurrency—is touted to be have a value that is guaranteed to be at parity with the Philippine peso “at all times.”
Last Jan. 20, Switzerland-based security-critical software provider Metaco said UnionBank has engaged them for digital assessment services, particularly cryptocurrency related security.
UnionBank, will leverage Metaco’s Harmonize system, which enables organizations to manage a range of end-to-end digital asset use cases including cryptocurrency custody.
Fitch Ratings believes that cryptocurrency trading and custodial fees can boost and diversify bank’s income, although revenues are unlikely to be significant in the next few years for Fitch-rated banks in Southeast Asia.
The company said reputational risks could stem from activities when, for example, if customers perceive banks have tacitly endorsed crypto trades that subsequently turn sour.
“We view cybersecurity threats, such as scams and hacks involving exchanges, as another prominent [operational] risk,” Fitch Ratings said.
