Moody’s: Digital banks helping PH, region reach financial inclusion goal

Spurred by favorable regulatory frameworks, digital banks are sprouting in the Philippines and the rest of the region and are helping improve financial inclusion, according to Moody’s Investor Service.

In a research note, the international debt watcher said these neobanks were helping in the onboarding of those who have little or no access to financial services.

Moody’s said the potential for such benefit was large considering that a significant proportion of Southeast Asia’s population does not own a bank account, and a much higher proportion does not own a credit card.

“The financing gap for micro, small and medium enterprises also remains sizable in the region, particularly in Indonesia and the Philippines,” it said.

Nontraditional players

Thanks to new licensing regimes, the rise of digital banks are also prompting nontraditional players such as technology companies and nonfinancial conglomerates to enter the banking sector.

Among members of the Association of Southeast Asian Nations, central banks in the Philippines and Singapore have awarded licenses to neobanks while regulators in Malaysia and Thailand are getting ready. Meanwhile, existing players in Indonesia are being encouraged to convert into digital banks.

The Bangko Sentral ng Pilipinas has issued licenses to six firms to operate as digital banks: Overseas Filipino Bank, Tonik Bank, Unobank, Gotyme, Uniondigital Bank and Maya Bank.

According to Moody’s, many of these digital banks are affiliates of large technology companies. Thus, they can leverage their parents’ technologies and customer base to reach the mass market.

Digital banks affiliated with popular e-wallets and online platforms also have the advantages of brand familiarity and data capability to underwrite loans that incumbent banks traditionally avoid, Moody’s added.

It added that the emergence of digital banks would spur digitalization among incumbents and increase competition for deposits.

Despite these developments, Moody’s pointed out that digital banks were still untested when it came to credit cycles.

“The success of digital banks will depend on their ability to underwrite the unbanked and underserved profitably,” it said. “Some digital banks in Indonesia and the Philippines have started operating, and their financials so far suggest that they have had greater success attracting deposits than underwriting loans.”