The Malaysian banking sector is ripe for disruption and consolidation with the entry of digital banks and increase in competition
The entry of five new digital banks is expected to be a disruptor for the Malaysian banking sector, leading to both increased competition and possible consolidation. In April 2022, Bank Negara Malaysia (BNM), the country’s central bank, issued digital banking licenses to five consortiums, three of which are majority-owned by Malaysians.
THE NEW ENTRANTS
The consortiums include tie-ups between leading fintech players and banks such as between Boost Holdings Sdn Bhd and RHB Bank Berhad of Malaysia, as well as between Malaysian conglomerate Kuok Brothers and Singapore’s GXS Bank Pte Ltd, which is a digital bank joint-venture between ride-hailing firm Grab Holdings Limited and telco SingTel. They also mark the entry of non-finance players such as the consortium between e-commerce major SEA, which owns the Shopee platform, and YTL Power International Bhd, which has interests in the power and telecoms sectors.
The other two entrants, which have got a digital bank licence under the Islamic Financial Services Act 2013, are the consortium of AEON Financial Service, AEON Credit Service (M) Bhd and fintech firm MoneyLion, and the KAF Investment Bank-led consortium that includes Malaysian start-ups Carsome, MoneyMatch and Jirnexu.
MALAYSIA’S NEW DIGITAL BANK CONSORTIUMS
GROWING COMPETITION
The new digital banks, which launched their operations in 2022, are expected to drive innovation and increase competitiveness in the banking sector.
They are looking to tap the opportunity arising from the pandemic-induced increase in online banking and e-wallet transactions in the country. More crucially, while they may find it difficult to compete with traditional commercial banks, which have large balance sheets, on corporate lending the new entrants will seek to expand the market and improve financial inclusion by catering to the unserved and underserved segments.
Consortium partners are expected to leverage their existing customer base, financial resources, and technological expertise and data-driven insights (in the case of fintech partners) to woo retail customers, gig economy workers and micro, small and medium enterprises with cheaper transaction costs, attractive financing rates and faster turnaround times.
POTENTIAL CONSOLIDATION
The rise of fintechs in the last few years means that incumbent Malasian banks are already facing competition from non-traditional players today. Add to this the need to scale up operations and cope with rising costs, and it could lead to consolidation in the crowded banking sector.
Some hints of this appeared last year when it was reported that Malaysia’s banking magnate Quek Lang Chan was exploring options to sell his stake in Hong Leong Bank (HLB).
Incidentally, BNM has clarified that it will not extend the exemption granted under the “grandfather rule” to HLB’s Quek, Public Bank’s The Hong Piow, and AMMB Holdings Bhd’s Azman Hashim to other individual shareholders. Quek, Teh and Azman, who are all over 80 years of age, have been allowed to exceed the 10% limit on individual shareholding in a financial institution applicable under Malaysia’s Financial Services Act. BNM’s clarification that any future acquisitions by individuals will have to comply with the 10% limit could potentially drive consolidation, too.
Undoubtedly, the new digital banks face regulatory constraints as their assets are capped at Malaysian Ringgit 3 billion in the foundational phase, which could limit the threat they can pose to incumbent banks. Nevertheless, the digital transformation and expansion of banking products and services triggered by them could disrupt the Malaysian banking sector
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