DBS: This is who will benefit from new digital banking licences

POSB, OCBC, UOB and Citibank ATMs in Singapore.POSB, OCBC, UOB and Citibank ATMs in Singapore.

Small-to-medium sized enterprises (SMEs) are likely to benefit from Singapore’s move to allow digital banks into the market, DBS said in a note Monday.

DBS noted that applicants for the licences reportedly will need to show how they can address unmet demand.

“We believe that by allowing up to three more wholesale digital banks and two more digital full banks, together with the local finance companies whose core business is in SME financing, SMEs will be able to benefit from greater choices and have greater ease in securing loans,” DBS said.

“This will encourage an even more vibrant and collectively bigger SME financing industry, where SMEs are estimated to provide more than two-thirds of jobs locally,” the note added.

The Monetary Authority of Singapore (MAS) announced Friday it would issue up to five new digital bank licences, in a move opening the banking sector to non-bank players.

The licences will include up to two digital full bank licences, allowing the holder to offer a wide range of financial services and take deposits from retail customers, the MAS said. There would also be up to three digital wholesale bank licences allowing the holders to serve small-to-medium enterprises (SMEs) and other non-retail market segments, the MAS said. Those licences would be open to all companies, the statement said.

The DBS note didn’t express much concern over how the new competition might affect Singapore’s existing banks.

“Value-destructive competition will not qualify as MAS requires applicants to put forth a sustainable digital banking business model,” the note said.

Additionally, DBS didn’t expect much fresh competition for deposits, at least initially.

“As restricted digital full banks are only allowed to accept deposits from a small group of persons such as business partners, staff, and related parties in the initial stage, we believe the impact on the local deposits space will be minimal for now,” the note said.

The digital whole sale banks would be allowed to operate business accounts from SMEs and corporates, but Singapore dollar retail deposits would only be permitted for fixed deposits above S$250,000, the note said.

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