Singapore May Allow Virtual Banks
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Singapore may permit virtual banks to operate in the city-state, following in the footsteps of Hong Kong, said DBS chief executive.
If virtual banking licenses were handed out in Singapore, it would step up the competitive pressures faced by incumbent lenders. However, those who have upgraded their digital capabilities should not fear this new form of competition, said DBS chief executive Piyush Gupta.
To my mind, that’s just basically giving a few more banking licenses, said Gupta, who was speaking in an interview with Bloomberg. Virtual banks could typically generate $100 income at 25 to 30 percent of operating costs, according to experts. In comparison, DBS’s cost-to-income ratio stood at 44 percent last year.
In the interview, Gupta does not see a problem with having virtual banking licenses in Singapore unless these virtual banks are allowed to operate on more lenient terms than incumbents, such as lower capital requirements held.
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, he said. However, he felt that most regulators don’t seem to be inclined to do that.
Questions & Answers
Q.What is the primary concern for existing banks regarding the potential introduction of virtual bank licenses?
What is the primary concern for existing banks regarding the potential introduction of virtual bank licenses?
Incumbent banks are mainly concerned if virtual banks are granted licenses with more lenient operating terms, particularly lower capital requirements. This could create an unfair competitive environment where new entrants have an advantage.
Q.How do the operating costs of typical virtual banks compare to those of incumbent banks like DBS?
How do the operating costs of typical virtual banks compare to those of incumbent banks like DBS?
Virtual banks typically generate £100 income at 25% to 30% of operating costs, according to experts. In contrast, DBS's cost-to-income ratio was 44% last year, indicating virtual banks generally have lower operating expenses.
Q.What is the DBS chief executive's general view on new virtual bank licenses in Singapore?
What is the DBS chief executive's general view on new virtual bank licenses in Singapore?
The DBS chief executive believes that new virtual bank licenses are simply an increase in banking licenses. He does not see an issue as long as regulators do not create an unlevel playing field with more lenient terms for virtual banks.
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