Digital Banks Poses Limited Threat to Banks in Malaysia – RAM Ratings
(27 May 2020 – Kuala Lumpur) Analysts at RAM Ratings believe that while digital banks will intensify competition in the Malaysian market, their impact will be limited in the next three years, given the regulatory restrictions on their asset size which is limited to RM2 billion.
The credit rating agency noted that the combined asset of the five digital banks would account for just 0.3 percent of the industry’s total.
“Bank Negara Malaysia (BNM) also requires digital banks to focus on financial inclusion to address the market gaps in the underserved and unserved segments. This will temper the head-on competition with traditional banks in the mass retail and SME markets,” said RAM Ratings’ Financial Institution Ratings co-head Sophia Lee.
These digital banks will be subjected to the same regulatory framework as commercial banks, although their capital adequacy and liquidity requirements will be simplified during the foundational period of between three and five years.
“That said, we do not expect digital banks to compete with unsustainable rates as they are required to prove their profitability and business sustainability to maintain their licences,” said RAM Ratings.
In the long run, however, digital banks may have a meaningful impact on the banking landscape, especially for traditional banks that do not innovate or strengthen their digital propositions quickly enough.