Two foreign banks and one local bank has formally submitted its application to acquire a digital bank license in the Philippines, according to Bangko Sentral ng Pilipinas (BSP) Deputy Governor Chuchi G. Fonacier.

Fonacier, who heads the BSP’s financial supervision sector, has confirmed that three out of five who have expressed interests to get a digital bank license has advanced to the application stage.

She said of the three applicants, one is a foreign digital bank in partnership with a local company. “Another is a foreign company in partnership with a local investor,” said Fonacier.

BSP Deputy Governor Chuchi G. Fonacier (Bloomberg file photo)

Digital banks are banks that will have no physical presence and will rely only on an all-digital platform and/or electronic channels in offering financial products and services. Foreigners – individual or non-bank corporation – can own or control up to 40 percent of a digital bank, the same rule of ownership applied to commercial banks and thrift banks.

In the Philippines, Dutch bank ING Bank, already operating as a virtual bank pre-pandemic, is one of the foreign banks that have signified potential plans to apply for a digital bank license after the BSP released the new circular last November 2020.

Among the local-owned financial institutions that have also relayed an interest and willing to explore an online-only bank is Rizal Commercial Banking Corp., Union Bank of the Philippines and Philippine National Bank. Most of the big banks already have substantial digitalization to cut costs for both bank and their clients, with IT and digitalization investments of P3 billion to P5 billion per bank, per year.

Based on BSP rules (Circular No. 1105), the establishment of digital banks require P1 billion minimum capitalization compared to P2 billion for commercial banks and P3 billion for universal banks. Thrift banks’ capitalization is P500 million to P2 billion depending on the location of branches.

The latest issuance on digital bank regulation was a January clarificatory memo on new bank applicants. The BSP said applicants that are proposing to operate business models that looked like digital banks will be approved as digital banks.

BSP Circular Letter No. CL-2021-006 (Clarification on the Guidelines on the Establishment of New Banks), signed by Fonacier, said that even if new bank applicants have not stated which of the seven bank license category they are applying for, the BSP will assign them the category that fits their proposal. 

A digital bank is the BSP’s seventh bank category. Digital banks will have minimal or zero-reliance on physical touchpoints but it will have to set up one office in the Philippines to receive and address customer complaints or issues.

Fonacier in the memo said the BSP may require all banks with digital banking services to apply for the appropriate digital bank license as per its transitory provision. She also said that only a bank that is granted a digital banking license may represent itself to the public as such in connection with its business name.

In the meantime, the BSP has directed existing banks converting to digital banks to make the transition within three years from date of acquiring a Monetary Board approval. 

The BSP describes a digital bank as performing the following: grant loans, whether secured or unsecured; accept savings and time deposits including basic deposit accounts; accept foreign currency deposits; and invests in readily marketable bonds and other debt securities, commercial papers and accounts receivable, drafts, bills of exchange, acceptances or notes arising out of commercial transactions. 

A digital bank can also act as correspondent bank for other financial institutions and as collection agent. It is allowed to issue electronic money products, credit cards, as well as to buy and sell foreign exchange, and to market, sell and service microinsurance products.

Source: Manila Bulletin (