S&P Global Ratings: Digital Banks To Have Limited Impact On Traditional Banks

Alex Cheong Pui Yin

9th May 2024 - 2 min read

S&P Global Ratings has commented that traditional banks in Malaysia are not expected to be significantly impacted by the emergence of digital banks. This is attributed mainly to the new banks’ limited capacity for rapid growth during their early years of operation, which, in turn, also curbs their potential to become a game changer for now.

Justifying the statement, senior analyst from the credit rating agency, Sue Ong explained that Malaysia’s digital banks are required to fulfil several requirements set by Bank Negara Malaysia (BNM), one of which is to serve the underbanked or unbanked population.

“But the thing is, Malaysia already has a very high banking penetration rate at more than 90% (of the population) and these are served by the traditional Malaysian banks. This means that digital banks are unable to grow very quickly within the first few years. This will be a very small share of the total asset size of the Malaysian banking sector,” Ong elaborated.

That said, Ong acknowledged that digital banks may use promotional campaigns with appealing deposit offers during their launch to attract customers. It remains to be seen, however, if they can continue to keep their customers after the end of these promotions, while being pitted against the traditional banks’ deposit base.

Ong further noted that traditional banks have also amplified their efforts to enhance their digital services offerings in the face of this competition, with a focus on improving user experience through mobile banking apps. “They have introduced numerous new digital products tailored for small and medium enterprises (SMEs) and micro-SMEs, which are very similar to those by digital banks,” she added.

For context, BNM had awarded digital banking licences to five successful applicants back in 2022, with three licences given under the Financial Services Act 2013 (FSA) and another two under the Islamic Financial Services Act 2013 (IFSA). Of the five, GXBank became the first to receive BNM’s greenlight to commence operations in Malaysia, and officially launched its app to the public in November 2023. Other digital banks that are also set to roll out their banking apps soon include Boost Bank and AEON Bank.

(Source: The Sun)

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Alex Cheong Pui Yin

Previously covered recruitment-related stories and had a short stint as a copywriter for the property industry. She subsequently developed an interest in investment and robo-advisors.

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