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Singapore may allow virtual banks after Hong Kong, says DBS

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Virtual banks have lower operational costs than traditional lenders that rely on brick-and-mortar branch networks.

Monday 06, May 2019

(Bloomberg) --Singapore could follow Hong Kong in handing out virtual banking licences, in a move that would create another source of competition for the city state’s established banks.

DBS Group Holdings Chief Executive Officer downplayed the likely impact on Singapore’s existing banks, which are already competing with international giants like Citigroup Inc. as well as financial technology start-ups.

Piyush Gupta, DBS Group Holdings’ Chief Executive Officer, said, “Provided incumbent lenders have been upgrading their digital capabilities, any virtual banking newcomers shouldn’t be considered a threat.”

 “To my mind, that is just basically giving a few more banking licences,” Gupta added.

Among the firms to receive virtual licences in Hong Kong, three have partnered with financial institutions such as Standard Chartered, BOC Hong Kong Holdings as well as ZhongAn Online Insurance Company and fintech firm WeLab Holdings.

The new entrants are targeting a market dominated by HSBC Holdings, which has a leading share of the local market for retail and corporate lending, mortgages and credit cards.

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.

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, but most regulators do not seem to be inclined to do that,” added Gupta.

Singapore’s banking landscape is dominated by the three local lenders, DBS, Oversea-Chinese Banking Corporation and United Overseas Bank, though foreign firms such as HSBC and Citigroup also have branch networks.

Ong Ye Kung, Singapore’s Education Minister, said that virtual licences are a broader banking policy that has to be studied carefully.

 “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.

TAGS : DBS Group Holdings, HSBC, virtual banking licences, Standard Chartered, BOC Hong Kong Holdings, ZhongAn Online Insurance Company , Oversea-Chinese Banking Corporation, United Overseas Bank, Citigroup

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