Moody's -- Digital banks will boost innovation and financial inclusion in Southeast Asia, with uneven impact on incumbents
Research Announcement:
Moody's -- Digital banks will boost innovation
and financial inclusion in Southeast Asia, with uneven impact on
incumbents
Singapore, March 01, 2022 --
» The region’s new licensing rules are prompting the entry of digital banks, which will drive
innovation and improve access to financial services among the unbanked and underserved
» Large incumbent banks will be able to digitalize, but smaller banks that lack the resources will
face competition from both incumbents and digital banks
The rise of digital banks across Southeast Asia will spur innovation and increase financial inclusion
among the region’s unbanked and underserved. But the business model of digital banks remains
untested over credit cycles, while the impact of digital disruption will likely be uneven between leading
incumbent and small banks, according to a new report by Moody’s Investors Service.
“The entry of digital banks will promote growth in banking systems by enhancing the public’s access to
banking services – in a region where financial inclusion remains modest,” says Tengfu Li, a Moody’s
Assistant Vice President and Analyst.
“Many of these banks are affiliates of large consumer technology companies and can leverage their
parents’ technologies and customer base to reach the mass market. Digital banks affiliated with popular
e-wallets and online platforms will have the advantages of brand familiarity and data capability to
underwrite loans that incumbent banks traditionally avoid,” adds Li.
However, the success of digital banks will depend on their ability to underwrite the unbanked and
underserved profitably. They will likely take considerable time to develop underwriting models that are
sustainable across credit cycles. The potential volatility in financial support from technology companies
is another concern.
Among incumbent banks, the proliferation of digital banks will widen franchise differentiation. Large
leading incumbents are in a strong position to deepen their digitalization and defend their franchises,
but their smaller peers, especially standalone banks, lack the resources to do the same and will face
increasing competition from both digital banks and incumbents.
Subscribers can access the report at:
http://www.moodys.com/researchdocumentcontentpage.aspx?
docid=PBC_1304094
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This publication does not announce a credit rating action. For any credit ratings referenced in this
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for the most
updated credit rating action information and rating history.
Tengfu Li
AVP - Analyst
Financial Institutions Group
Moody's Investors Service Singapore Pte. Ltd.
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Graeme Knowd
MD - Banking
Financial Institutions Group
Moody's Investors Service Singapore Pte. Ltd.
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