Digital banks will spur financial innovation

KUALA LUMPUR: While digital banks are disruptors relative to traditional banks and will intensify competition, their impact will be limited in the next three years, given the regulatory restrictions on their asset size, that is, not more than RM2 billion, said RAM Rating Sdn Bhd (RAM Ratings).

The credit rating agency said the entry of digital banks is expected to spur more financial innovation and accelerate the digital transformation of the

Malaysian banking industry, but on the whole, the assets of the five digital banks would only represent 0.3 per cent of the industry’s.

“Bank Negara Malaysia (BNM) also requires digital banks to focus on financial inclusion to address the market gaps in the underserved and unserved segments.

“This will temper the head-on competition with traditional banks in the mass retail and SME markets,” said RAM

Ratings’ Financial Institution Ratings co-head Sophia Lee in conjunction with the release of RAM’s latest commentary titled “Digital banks will spur financial innovation, not yet a threat to traditional banks”.

BNM’s issuance of up to five digital banking licences has attracted various potential applicants, including technology companies, fintech players and financial institutions vying for a slice of the digital banking pie.