(1 February 2024 – Philippines) Philippine challenger banks have yet to materially disrupt the market despite geographic challenges that make online banking more appealing and a significant under-banked population.
A recent report by Fitch Ratings citing data from Bangko Sentral ng Pilipinas found that digital banks' aggregate market share of system deposits remained less than 0.4 percent in H2 2023 despite their rapid growth over the last two years. No digital bank in the Philippines holds more than 0.14 percent of total bank deposits including Ant Group-backed Maya Bank, Union Digital and Tonik Bank. GoTyme, UNO and Overseas Filipino Bank (OFB) represent a mere 0.01 percent of overall deposits, respectively.
High funding costs influence digital banks’ risk appetite, encouraging lending to higher-yielding albeit higher-risk segments such as unsecured SME loans.
Kapronasia reports that digital lenders market share is no more than a “drop in the bucket”, constrained by customers preferring to keep deposits “under the mattress” and a macroeconomic environment making it difficult to grow their deposit bases by offering high interest rates amid elevated inflation.
“The Philippines offers significant potential for digital challenger banks, due to its large unbanked population, and the digital bank segment has grown rapidly since its inception less than two years ago. Nonetheless, it remains modest as a share of the total market, and we do not believe it will shake competitive dynamics within the Philippine banking sector significantly in the medium term” states Fitch Ratings Singapore Director, Financial Institutions, Banks, Tamma Febrian.
“We believe the nature of digital banks’ loan books and customer base means they will be more exposed if there is an economic shock outside of Fitch’s baseline assumptions” comments states Fitch Ratings Singapore Director, Financial Institutions, Banks, Willie Tanoto.