The Monetary Board, the BSP’s policy-making arm, recently approved Circular No. 1154 or the “Prudential requirements applicable to digital banks,” effectively amending Circular No. 1105 or the “Basic guidelines in establishing banks” issued last December 2020.
The review of the draft took almost a year since it was first proposed and circulated in October 2021.
With the new circular, the BSP offered changes in the way digital banks are established in the country. It also clarified prudential, licensing, and documentation requirements for digital banks, paving the way for the Philippine central bank to also consider the application of thrift, rural, and cooperative banks that use digital bank business models as digital bank license applications.
BSP Circular No. 1154 noted that thrift banks, rural banks, and cooperative banks that primarily offer financial products and services which are processed end-to-end through a digital platform or electronic channels under an EPFS license will now also be required to put up a P1 billion capital before it can be granted a digital bank license.
Existing thrift banks, rural banks, and cooperative banks using a similar digital platform under EPFS license will likewise be given five years with which to meet the new minimum capital requirement of P1 billion for a digital bank license.
Based on BSP guidelines, the establishment of a digital bank requires a P1 billion minimum capitalization. To set up a thrift bank, the required capitalization is between P500 million to P2 billion depending on the location of the branches. Capitalization for rural banks, meanwhile, starts at P10 million and it can still go up to P200 million if the branches being set up are within the National Capital Region.
According to the BSP press release, “These banks shall submit to the Bangko Sentral an acceptable capital build-up program within six months from the date of effectivity of this circular.”
Digital bank license applications still closed for new applicants
In a statement, BSP Deputy Governor Chuchi G. Fonacier said that the amended circular does not mean that there will be digital bank licenses approved.
The BSP closed the window for submission of applications from new digital banks, including converting banks, starting on August 31 last year. It will remain closed until December 2024.
The circular also included a January 2021 clarificatory memo for new bank applicants.
The memo had previously explained that applicants proposing to operate business models that looked like digital banks will be approved as digital banks.
A digital bank is the BSP’s seventh bank category. Digital banks will have minimal or zero reliance on physical touchpoints but will have to set up one office in the Philippines to receive and address customer complaints or issues.
The BSP has limited the number of digital banks operating in the Philippines to give them the space they need to be able to closely monitor the performance of digital banks in the banking system as well as to determine their impact and contribution to the financial inclusion agenda.
The BSP granted only six digital bank licenses last year. Of the six, three are already fully operational while the other three are still on a limited run.
Overseas Filipino Bank Inc. (OFBank), Tonik Digital Bank Inc. (TONDB), UNObank Inc. (UBI), and MAYA were authorized by the BSP to operate in the first quarter of this year while UnionDigital Bank Inc. (UDB) and GoTyme Bank Corporation (GTYME) were given the green light only last July.
UBI, UDB, and GTYME are expected to publicly launch within the second half of this year.
According to the BSP, operating initially under a limited capacity is a conservative approach adopted by these digital banks to “further ensure that all aspects of their digital operations are ironed out prior to fully launching their services to the public.”