According to the Governor of the Bangko Sentral ng Pilipinas (BSP), Eli M. Remolona, Jr., digital banks encounter difficulties in disbursing loans and collecting payments. The BSP continues to closely monitor the sector and has placed digital banks in a regulatory sandbox to test innovations and mitigate risks.
During a Philippine economic briefing in Iloilo City on Monday, Governor Remolona stated that digital banks, despite successfully collecting deposits online, struggle with the intricacies of lending, leading them to remain in the regulatory sandbox. He mentioned that issuing licenses for digital banking had been temporarily halted in 2021 to monitor sector development, ensure competition, and enhance regulatory capabilities.
The six online banks with licenses to operate in the Philippines are Tonik Digital Bank, Inc.; GoTyme Bank (of the Gokongwei group and Singapore-based Tyme); Maya Bank (of Voyager Innovations, Inc.); Overseas Filipino Bank (a Land Bank of the Philippines subsidiary); UNObank (of DigibankASIA Pte. Ltd.); and UnionDigital Bank (of Union Bank of the Philippines, Inc.).
Governor Remolona emphasized that digital banks are an “experiment” facing challenges in managing loans purely through online platforms. Lending through digital means proves challenging, and the collection of loan repayments still relies on personal or institutional interactions, according to him.
While digital banks currently exhibit a higher nonperforming loan (NPL) ratio, standing at 8.46% as of September, Governor Remolona sees this as acceptable, indicating increasing lending capabilities. This NPL ratio is notably higher than the 3.4% NPL ratio of the entire Philippine banking system.
As of end-September, the digital banking group recorded P2.49 billion in NPLs, a 3.75% increase from August, with total assets reaching P82.29 billion in the first nine months of the year.
Fitch Ratings recently noted that digital banks in the Philippines may face challenges in competing against brick-and-mortar lenders in the medium term. The market share of system deposits for all digital banks remained below 0.4% as of end-June, and low average deposits per customer suggest that digital lenders have yet to capture most operating accounts.
Fitch anticipates robust economic growth in the Philippines, offering support to borrowers’ repayment capacity and asset quality for both digital and incumbent banks in 2024-2025.
