BSP sets P1B capital for digital banks

The Bangko Sentral ng Pilipinas (BSP) is requiring thrift, rural and cooperative banks shifting toward digital banking models to meet a P1 billion minimum capital requirement, as the central bank tightens prudential standards for lenders expanding their digital operations.

Under Circular No. 1240 dated 21 September, existing thrift, rural and cooperative banks identified by the BSP as operating under a business model similar to that of a digital bank must meet the same P1 billion minimum capital requirement applicable to digital banks.

These banks will have six months from receipt of the BSP’s notice to comply with the new prudential requirements.

The BSP said the rules are intended to ensure that banks transitioning to digital models can manage the risks associated with the “nature, scale, complexity, and risk profile” of their operations.

“The requirements aim to ensure that these banks can adequately manage risks arising from the nature, scale, complexity, and risk profile of their operations,” the BSP said.

The new requirements will apply to banks that fall under either of two conditions.

The first covers banks operating under a business model similar to that of a digital bank, or those whose risk management systems and capital are “no longer commensurate with their official business model and risk profile.”

The second covers banks using digital platforms to deliver services while recording significant growth in their loan or deposit balances.

For proposed acquisitions intended to transform a thrift, rural or cooperative bank into a technology-driven business model, the BSP will require the P1-billion minimum capital at the time of application. The bank must also comply with prudential standards applicable to digital banks.

Beyond the capital requirement, the BSP may impose additional measures, including enhanced supervisory reporting, restrictions on certain activities or new digital products and services, and strengthened risk management and control systems.

The circular also allows the BSP to issue additional digital bank licenses, including through the conversion of existing thrift, rural and cooperative banks, subject to the applicable licensing framework.

A digital banking license would allow these lenders to market their digital services to a wider customer base, including customers outside their usual geographic area of business.

“Conversion to a digital bank license is subject to review. The BSP will consider the readiness to run a digital bank, robustness of governance and systems, value proposition, business model, and resource capabilities,” the BSP said.

The BSP said there are currently seven licensed digital banks in the country, including Maya Bank, GoTyme Bank, and Union Digital Bank.

The central bank said the new rules support its efforts to promote “responsible innovation and prudent digital transformation” while safeguarding the banking system.