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Smaller banks may face threat from new fintech mart entrants

FINANCIAL PLAYERS backed by large firms or with an established presence looking to enter the Philippine market are expected to thrive and could pose a threat to more traditional smaller lenders here, a debt watcher said.

“We believe that aspiring entrants that already have extensive customer base or are backed by corporates with strong firepower would pose for a more formidable threat to the incumbents over time, with the smaller banks with sub-par digital offerings more at risk of losing out from the competition,” Tamma Febrian, associate director of the Financial Institutions Group of Fitch Ratings, said in an e-mail to BusinessWorld.

Mr. Febrian said the trend seen in the recent years showed financial technology (fintech) firms in the country have posted growth through bank partnerships rather than via acquisitions.

Meanwhile, in other ASEAN markets such as Indonesia, fintechs have been acquiring smaller banks.

“The foreign ownership restrictions for non-bank corporations in owning banks in the Philippines may also be another deterrent, especially for those who are seeking to have full control,” Mr. Febrian said.

He noted that fintech acquisitions are unlikely to pose a material challenge for big, incumbent banks that are more focused on underserved segments of the market.

“We believe that any near-term impact should be manageable, and many banks have accelerated their digitalization as a result of the pandemic, potentially closing of openings for some of the new entrants,” he said.

The central bank in November approved a regulatory framework for digital banks, which will be distinct from traditional brick-and-mortar lenders. The BSP has said it sees all-online banks helping in the expansion of the range of financial services available to Filipinos.

BSP Deputy Governor Chuchi G. Fonacier said earlier this month that they already received an application for a digital banking license from a partnership between local and foreign players. Four more parties have expressed interest in applying.

The BSP aims to bring the banked population to 70% of Filipino adults by 2023.

Only 25% of Filipino adults were part of the banked population as of 2019, leaving some 51.2 million of about 72 million with no formal accounts in the financial system. — L.W.T. Noble

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