SINGAPORE (Sept 26): CGS-CIMB Research says new digital banks are unlikely to threaten the market share of Singapore’s three incumbent lenders.
While CGS-CIMB agrees the potential for disruption is real, the stringent criterion set forth by the Monetary Authority of Singapore is a hurdle.
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The integration of banking services into an existing business ecosystem will be key to the growth of a new digital bank but “only a handful of technology or e-commerce players in Singapore” has that breadth of scale, says analyst Andrea Choong in a Wednesday report.
Apart from tighter regulations, a recent survey by CGS-CIMB revealed customers ranked cybersecurity as most important when choosing digital banks, followed by how intuitive its app is and what interest rates are offered.
The survey also found that more customers may be willing to park money with government-linked companies (GLC) like Singtel than commercial entities like Grab.
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Nevertheless, most immediately at risk to digital banks could be credit card fee income. “An estimated $364 million of card fees, or 23% of the market, could be at stake, but its impact may be muted given the many players in the market,” says Choong.
And although 39% of respondents are willing to put deposits in digital banks, CGS-CIMB’s study suggests that the average amount a customer is willing to place is relatively small, ranging between $5,072 to $12,697, or 4-11% of total deposits belonging to domestic banking units.
Among the three banks, DBS Group Holdings (DBS) and United Overseas Bank (UOB) were noted to have rolled out standalone digital banks in regional markets and have stepped up their efforts in digitalising processes. Digibank is DBS’s offering to the virtual banking landscape, while UOB rolled out TMRW bank in Thailand in March.
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CGS-CIMB is remaining “neutral” on the banking sector but says Oversea-Chinese Banking Corp (OCBC) is a laggard in the digital banking area although the bank is expected be part of a consortium in the running for a licence come end of the year.
UOB has been maintained at “add” with a target price of $29.54, given how its digital framework is built to fit existing infrastructure, enabling quicker rollout into other markets like Indonesia or Vietnam.
Meanwhile, CGS-CIMB has a “hold” on DBS and OCBC with target prices of $27.59 and $12.53 respectively.
As at 3.40pm, shares in UOB are trading 1.06% higher at $25.65 while shares in DBS are trading 0.73% higher at $24.91 and shares in OCBC are trading 0.65% higher at $10.84.
