Singapore could follow Hong Kong in handing out virtual banking licenses, according to the head of the largest local lender Piyush Gupta, in a move that would create another source of competition for the city state’s established banks.
Provided incumbent lenders have been upgrading their digital capabilities, any virtual banking newcomers shouldn’t be considered a threat, Gupta said. “To my mind, that’s just basically giving a few more banking licenses,” he added.
Virtual banks typically have lower operational costs than traditional lenders that rely on brick-and-mortar branch networks. Last month, Gupta told DBS’s annual shareholder meeting that a new digital bank could generate $100 of income from a cost base a little above $30. In contrast, DBS’s cost-to-income ratio stood at 44 per cent last year.
In the interview, Gupta said he’d only see a problem in Singapore if virtual banks are allowed to operate on more lenient terms than the incumbents, for example in terms of the capital they are required to hold. “The real challenge is if the regulators create an unlevel playing field, and let the new bank licensees come in and do banking on different terms,” he said. But he said most regulators “don’t seem to be inclined” to do that.
Virtual licenses are “a broader banking policy that has to be studied carefully," Singapore’s Education Minister Ong Ye Kung, who sits on the MAS board, said in a parliamentary speech in January. “The real question is whether there are benefits for Singapore to increase the number of banks in Singapore by admitting primarily digital start-up banks,” Ong added.