Jefferies: Digital-Only Banks to Threaten Up to 5 Percent of Asset Base
Singapore’s newly emerging digital-only banks are unlikely to pose much competition initially, threatening to obtain 3-5 percent of the existing asset base only in the best case scenario.
Singapore’s incumbent banks are unlikely to face immediate threat from newly emerging digital lenders due in part to balance sheet mix, according to report by Jefferies.
«In any case, unsecured book (excluding credit card) by our estimate is about $50 billion,» said Krishna Guha, equity analyst at Jefferies. «So that may see asset yield compression, but then the three local banks have about $1.5 trillion of assets of which half originate within Singapore. So, at best, the incumbents face significant competition for 3 percent to 5 percent of asset base.»
In addition, incumbent lenders have invested their fair share in digitalization which will bode well against the new entrants, Guha added.
Long-Term Threat
Guha warns that long-term threats loom for traditional banks due to the ability for digital players to «get almost a real-time 360-degree view of their customers» while also providing broad financial services. The opportunity cost for traditional banks would be information loss, for example, with regards to lost business or client expansion into other geographies through new entrants.
Unsecured lending is an area that was highlighted where digital banks could pose a greater threat to generate profits initially, according to Guha.
«Assuming that new entrants offer 3 percent on a six-month deposit, it will be serious competition given that current comparable deposit rates are about 1.5 percent,» he said.
