Singapore’s digital banks have recently raised their deposit caps, but this move is not expected to significantly impact the profitability of local banks DBS, OCBC and UOB, according to Fitch Ratings.
Grab and Singtel’s GXS Bank as well as Sea Group’s MariBank have already increased their individual savings account caps to SGD 75,000, signaling the possible lifting of the SGD 50 million cap on aggregate deposits for each digital bank. The Monetary Authority of Singapore (MAS) has yet to officially confirm this.
However, this is no match for the three local incumbent banks which had accounted for 65% of all Singapore-dollar deposits as of end 2022.
DBS, OCBC and UOB have over SGD 500 billion of deposits between them compared to the SGD 100 million that GXS and MariBank were capped at.
Trust Bank, another digital bank in Singapore, has already attracted over SGD 1 billion in deposits since its launch, but this also did not have a considerable impact on net interest margins for the dominant incumbents.
While the lifting of deposit caps for digital banks in Singapore may result in higher deposit holdings, it is unlikely to have a significant impact on the profitability of the dominant incumbent banks in the near term.
The focus for digital banks will be on securing funding and addressing various challenges to achieve long-term sustainability and growth.
Additionally, Fitch warns that digital banks could still be vulnerable to deposit outflows during times of stress, as depositors may seek the safety of the dominant incumbent banks.
“The digital full banks will face other challenges to achieving long-term viability beyond securing funding. These include attaining sufficient scale to achieve profitability, gaining access to bankable customers and asset origination opportunities, and developing a range of products that are priced competitively after adjustment for the relevant credit risks.
Finding profitable opportunities for revenue generation may be difficult. Over half of the loan books of the three dominant banks comprise loans outside of Singapore, which Fitch believes is partly due to limited earnings prospects in the small and saturated domestic market.”