This article first appeared in The Edge Malaysia Weekly on July 5, 2021 - July 11, 2021
THE June 30 deadline to apply for a digital banking licence in Malaysia passed last week, with Bank Negara Malaysia receiving 29 applications — a tad lower than the number Hong Kong attracted in 2019 but higher than Singapore’s last year.
Industry experts had expected Malaysia to attract more applications than Hong Kong or Singapore mainly because of its relatively lower capital requirement for digital banks.
In December 2020, the Singapore central bank granted four digital bank licences after receiving 21 applications, and in May 2019, Hong Kong issued eight such licences after attracting more than 30 applications.
In February this year, Bank Negara governor Datuk Nor Shamsiah Mohd Yunos said as many as 40 parties had registered their interest to apply for a digital banking licence.
“There were indeed many parties that were keen on the Malaysian licence. But many combined to form consortiums and apply,” explains an industry observer. Singapore and Hong Kong too had seen interested parties forming consortiums.
Bank Negara plans to issue up to five licences and will announce the successful applicants in the first quarter of next year.
“A diverse range of parties have submitted applications for the digital bank licence, including banks, industry conglomerates, technology firms, e-commerce operators, fintech players, cooperatives and state governments,” it said in a press release on July 2, without naming the parties.
Successful applicants that meet all prudential criteria will be expected to contribute towards greater financial inclusion by offering products and services to address market gaps in the underserved and unserved segments.
“This includes promoting suitable and affordable financial solutions by leveraging on innovative application of technology,” the central bank says.
Who did and did not apply
As expected, most of the big, exciting names that were reported to be keen to apply — including Grab Holdings Inc, Boost Holdings Sdn Bhd and BigPay — have already announced that they have done so.
According to sources, two companies that had considered applying for a licence as part of consortiums — Bank Rakyat and Touch ’n Go (TNG) — ended up deciding not to. TNG is a subsidiary of banking group CIMB Group Holdings Bhd.
Late last Friday, Angkatan Koperasi Kebangsaan Malaysia Bhd (Angkasa) said it had teamed up with Boustead Holdings Bhd and “a large independent insurance brokerage company” to apply for an Islamic digital banking licence as part of a consortium with others. The collaboration is through Angkasa’s subsidiary, MyAngkasa Digital Services, which has a captive market of seven million, most of whom are in the unserved and underserved segments.
Not surprisingly, Grab, which many see as a strong contender for a licence, teamed up with Singapore Telecommunications Ltd (Singtel) — Singapore’s biggest telecommunications company — to make a bid. In a stock exchange filing last Thursday, Singtel said the joint bid was made with a consortium of “other investors”. The two had won a full digital banking licence in the city state last year and are expected to launch their services by early next year.
They will compete against a joint venture comprising Boost — a subsidiary of Malaysian telco Axiata Group Bhd — and mid-sized lender RHB Group Bhd. This joint venture is also seen as a frontrunner for the licence (see table for other applicants).
AirAsia Group Bhd’s fintech unit BigPay said last Thursday it had partnered Malaysia Industrial Development Finance Bhd (MIDF), private equity (PE) firm Ikhlas Capital and “a foreign conglomerate with fintech expertise” to apply for a licence as a consortium. Ikhlas Capital is partly owned by former CIMB bankers Datuk Seri Nazir Razak and Kenny Kim.
The partners make for an interesting mix. While it did not name the foreign conglomerate, market talk is that it is also a PE firm.
An industry source says it is not unusual for PE firms to be part of such consortiums.
“In Singapore, there were quite a number of PE firms that participated, so it’s not that unusual. PE firms bring money and capital to the table. They put money into the new venture and the exit criteria is usually an IPO (initial public offering). So, they’re looking at it as a long-term investment; they can cash out in the future,” he tells The Edge.
Indeed, one of South Korea’s most popular digital banks, Kakao Bank, was reported last week to be planning to raise as much as US$2.3 billion (RM9.6 billion) in an IPO. The bank, formed in 2016, would become the country’s third most valuable lender upon listing.
In Malaysia, the central bank requires a digital bank to maintain minimum capital funds of RM100 million, unimpaired by losses, during its foundational phase — that is, the first three to five years. After the foundational phase, the amount increases to RM300 million.
In Singapore, the minimum paid-up capital requirement is S$100 million (RM308.8 million) for a digital wholesale bank, but S$1.5 billion for a digital full bank, or a concessionary S$15 million in the initial one to two years. As for Hong Kong, the minimum paid-up capital for a digital bank is HK$300 million (RM156 million), which is the same for commercial banks.
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