With the lifting of a three-year moratorium on digital banking licenses, the Philippines’ digital banking sector is attracting interest from foreign players, particularly in the burgeoning area of Islamic finance.
The number of digital banks in the Philippines is about to grow even more. News has emerged of two reported potential new foreign entrants, including those from Malaysia, expressing strong interest in joining. Recently, the Bangko Sentral ng Pilipinas (BSP) lifted its three-year moratorium on new digital banking licences, paving the way for expansion.
These potential entrants are reportedly finalising their documentation, though they have not yet filed any formal applications. The BSP is clear about its expectations. Firstly, applicants must bring innovative products and services to the table, specifically designed to reach the underserved. And secondly, they must be able to tap into segments of the population.
Interestingly, the interest extends beyond conventional digital banks.
Two Islamic lenders are also looking to set up digital banks in the country, according to BSP Deputy Governor Chuchi G. Fonacier.
“When I joined the Malaysian leg in the roadshow, one bank was asking about the possibility of becoming the first Islamic digital bank,” she said. “That was last year, so we said the moratorium for digital banks will be lifted, so it’s very much possible.”
This particular Islamic bank already has a presence in the Philippines and is seeking to venture into digital banking.
Another “major player in Malaysia” is also interested in setting up shop in the Philippines, Fonacier added. “It will depend on them who will become the first Islamic digital bank,” she said.
This comes as the BSP actively promotes the growth of Islamic finance within the country.
The central bank is also keen to see more competition in the Islamic banking space. BSP is hoping to increase the current number of institutions offering such services.
The Philippines is already home to six digital banks, with numbers expected to grow to 10 this year. The addition of new players is expected to further stimulate the growth of the digital banking sector. With help particularly coming from those with innovative approaches and a focus on underserved markets.
The BSP’s push for Islamic finance, coupled with the interest from Malaysian institutions, signals a potential boost for this specialised area of banking within the Philippines. With the recent successful issuance of its first Sukuk bonds, the Philippines is demonstrating its commitment to expanding its Islamic finance footprint.
Thus, the potential entry of Malaysian Islamic banks into the digital banking sector in the Philippines could be a significant step in this direction.