SINGAPORE – The raising of deposit caps for digital banks will likely not impact the profitability of Singapore’s trio of local banks, said Fitch Ratings in a report.
Digital bank GXS, which is backed by Grab and Singtel, said last Wednesday that it will raise the limit for deposits from $5,000 per account to the new $75,000 threshold. Separately, Sea-owned MariBank disclosed it would raise its deposit limit to $75,000 with effect from last Thursday.
Their moves indicate that the Monetary Authority of Singapore has eased the $50 million deposit cap on companies holding digital full bank licences, although this has yet to be confirmed officially.
The higher savings account caps are at the same level as Singapore’s existing deposit insurance limit. This means that the digital banks continue to operate within a “de facto regulatory sandbox” where individual depositors remain protected, Fitch Ratings said.
Although the increase in the cap could lead to a “substantial rise” in GXS’ and MariBank’s deposit holdings, it is still dwarfed in comparison with that of the trio of local banks.
This suggests insignificant near-term implications for competition and net interest margins (NIM), Fitch Ratings said.
It noted that the “Big 3” commanded 65 per cent of all Singapore-dollar deposits as at the end of 2022. They also have more than $500 billion of deposits among themselves, compared with the $100 million that GXS and MariBank were capped at.
DBS Bank, OCBC Bank and UOB also maintain a “significant liquidity surplus” with central banks that bear low liquidity risk. This means that capital can be readily deployed when needed to support asset growth when there are opportunities.
“Abundant liquidity, supported by strong deposit inflows, has mitigated the pressure on the dominant banks to compete for deposits,” Fitch Ratings said. This, in turn, has supported an increase in NIM and profitability amid rising interest rates.
Nevertheless, the increased caps would broaden the digital banks’ funding base, although they could still be vulnerable to deposit outflows during stressful times.
In such a case, the incumbent banks would benefit from a “flight to quality”.
Fitch Ratings also noted that raising the capacity for more deposit funding is the first step towards sustainable growth in digital banks.
“The digital full banks will face other challenges to achieving long-term viability beyond securing funding,” the credit rating agency said, noting that the high interest rate environment has been challenging for them.
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