Digital Bank M&A Coming Soon – UBS
(13 January 2021 – Asia) Growing capital requirements and the systemic importance of traditional banks are expected to drive mergers and acquisitions (M&A) between lenders of the new and old world according to UBS.
“A lot of these digital banks – will they be standalone for long? I personally don’t think so. I think it'll come to a point that if capital requirements continue to increase, major local banks will take a stake into these digital banks to help them to also regionalise. That’s my reading. It’s still early days” said UBS President Asia Pacific, Edmund Koh.
Given the relatively smaller market within Hong Kong and Singapore, local lenders in these two financial hubs tend to have significant access to the broader region. For instance, UOB and OCBC’s ASEAN businesses and Bank of East Asia’s greater China business.
In addition to the challenges of achieving scale, Koh also underlined the systemic importance of traditional banks and the low likelihood that authorities in the region will allow them to be surpassed by freshly licensed digital players.
Koh believes digital banks can leverage the anti-money laundering and credit risk capabilities of brick-and-mortar banks through mergers. While traditional banks can tap the capabilities of the digital banks to “mine clients by the minute”, helping meet day-to-day financial needs all the more efficiently and seamlessly, especially for SME clients that lack the in-house technology.
“I think hybrid banks can do quite well if they merge behavioural risk from the usage of the mobile facilities with credit risk so that their scoring model could actually be stronger,” he added. “I see a merger of sorts three to five years down the road.”