However, the Philippines may be an exception.The Philippines is the second largest market in Southeast Asia after Indonesia, with a population of about 116 million, and like Indonesia it is a vast island nation that is not necessarily conducive to physical bank branches. In addition, the Philippine central bank is intent on reaching some financial inclusion and digitization targets in the next few years. For these reason, we are not surprised that Bangko Sentral ng Pilipinas (BSP) has decided to reopen digital banking license applications after a three-year hiatus.
Several days ago, BSP Governor Eli Remolona Jr. told the Philippine Daily Inquirer that a circular on the matter of reopening the digital banking license process will be released soon. The Philippines currently has six online lenders that have received digital banking licenses: UNO Digital Bank, UnionDigital Bank, GoTyme, Overseas Filipino Bank of state-run Land Bank of the Philippines, Tonik Digital Bank and Maya Bank. In addition, there are other entities that operate as de facto digital banks but face more restrictions than the six licensed lenders.
In 2021, the BSP imposed a three-year moratorium on applications for digital banking licenses to give the regulator enough time to monitor the performance of the new online lenders and their impact on the financial system. It will take time for Philippine online banks to be profitable, and in March, the BSP said that just two of the official digital lenders – which it did not identify – are profitable and it may take five to seven years before the others reach that milestone.
One issue that the Philippines’ digital banks is confronting is a relatively high non-performing loan (NPL) ratio. According to the BSP, as of May 2024, P4.9 billion of digital banks’ total loan portfolio was considered non-performing — more than 90 days late on a payment — resulting in a gross NPL ratio of almost 21%, compared to the 3.57% ratio for the overall Philippine banking sector.
However, investors seem willing to be patient with regards to digital banks. According to the Digital Bank Association of the Philippines (DiBA PH), the country’s online lenders have raised over US$700 million since 2021. The value of online lenders’ deposits almost doubled to P69 billion in 2023 from P35 billion in 2022, while during that same period, loans grew 127% from to P25 billion from P11 billion.