BSP keen on issuing license to digi-banks
WHILE it takes at least five years before digital banks can realize a profit, the Bangko Sentral ng Pilipinas (BSP) remains keen on licensing more of these banks due to high interest among market players.
In a recent briefing with reporters, BSP Governor Eli M. Remolona said increasing the number of digital banks from the six that have been given licenses is part of the digitalization strategies of the central bank.
Currently, BSP Deputy Governor Mamerto E. Tangonan said only two out of the six digital banks are profitable. Nonetheless, he said, the other digital banks expect to realize a profit between five to seven years of operation.
“Quite a few are interested; they can’t wait for us to open it up. As to how they’re doing, most of them, maybe one or two are doing well (especially) in terms of being able to make reasonable loans. I don’t think anyone is making money yet,” Remolona said.
The central bank official added that the BSP will release soon a comprehensive report of the performance of digital banks. The data contained in this report will be used by the BSP to determine if the moratorium of issuing digital bank licenses will be extended or lifted.
“So far the six digital banks have already generated around 8.7 million deposit accounts which represent around seven percent of the total in the Philippine banking system,” Tangonan said.
One of the difficulties of operating digital banks is extending loans. In the Philippines, Remolona said, humans are still needeed in collecting loan payments.
“In our culture, apparently, you need a human being to collect. But nonetheless, we’re hoping digital banks can figure this out, and a couple of them are figuring it out,” the BSP Governor added.
Apart from digital banks, Remolona said the BSP is also working on the Open Finance Framework which seeks to protect the privacy of clients of big banks.
The framework ensures that the financial data of clients are not used for other non-bank related purposes. Through this, well-established banks would have to seek the permission of their customers first before using this information for other purposes.
“Our role here is to make sure that when you use your customers’ data, that you use it with their permission. They (customers) still own the data. You (banks) don’t own that data,” Remolona said in a recent forum of finance executives. As for financial technology (fintech), the BSP has a Regulatory Sandbox where fintechs can test their innovations against the regulations being performed by the BSP.
The piloting of these innovations will be checked against the regulatory implications these may have. This, Remolona said, reduces the regulatory uncertainties encountered by banks.
Remolona said entering a regulatory sandbox is recommended for fintechs. They will then b e assigned a regulator which could give them pointers on which aspects of the innovation are against existing BSP rules.
“The regulator is there to tell you what the regulatory implications might be if you succeed. We’re not there to judge whether you will succeed or not,” Remolona said.
“We’re just there to help you. If you succeed, you know what you’re getting into in terms of regulation. It’s about minimizing regulatory uncertainty,” he added.
Meanwhile, the BSP is also keen on Generative Artificial Intelligence (AI). Remolona said this is inevitable for the central bank given the prevalent use of AI in various industries.
However, the BSP is still weeding out risks that are linked to AI, particularly herding. Remolona said this happens when Generative AI has hallucinations such as information that did not or have never happened.
“There’s a tendency for what we call herding. They tend to give the same answers for several different questions. And the herding is something that is a source of systemic risk, a possible source of systemic risk,” Remolona told reporters.