Edmund Koh: Virtual Bank Mergers Coming Soon
Growing capital requirements and the systemic importance of traditional banks are expected to drive mergers between lenders of the new and old world in the coming years, according to UBS Asia head Edmund Koh.
Given the increasingly intensive capital requirements as well as the relatively smaller market within Hong Kong and Singapore, UBS’s APAC president Edmund Koh believes that newly licensed virtual banks face an uphill battle competing in the market as standalone entities.
«A lot of these digital banks – will they be standalone for long? I personally don’t think so,» Koh said at a virtual roundtable yesterday.
«I think it'll come to a point that If capital requirements continue to increase, major local banks will take a stake into these digital banks to help them to also regionalize. That’s my reading. it’s still early days.»
Regional Connectivity
According to Koh, Hong Kong and Singapore’s market opportunity by the size of its population pales in comparison with the likes of China or even Thailand and Vietnam. But what could help the latter two financial hubs boost access to the broader region is through the connectivity of local lenders.
Indeed there are numerous players headquartered in the dual hubs that have significant access to much larger markets such as UOB and OCBC’s ASEAN businesses or Bank of East Asia’s Greater China business.
«The interesting thing about these two economies is that their local banks are by far the most regionalized,» Koh said.
Systemic Importance
In addition to the challenges of achieving scale, Koh also underlined the systemic importance of traditional banks and the low likelihood that authorities in the region will allow them to be surpassed by freshly licensed virtual players.
«[B]ecause of the systemic, strategic importance of the local banks in the financial system, I don’t think local regulators will allow these digital banks to dilute the so-called brick-and-mortar banks today,» he explained.
Tech + Traditions
But Koh believes that the drivers for mergers are not limited to covering the downside and that there are, in fact, strong synergies to be found between virtual and traditional banks from mergers.
On one hand, the former can leverage the anti-money laundering and credit risk capabilities of the latter. And on the other hand, the latter can tap the capabilities of the former to «mine clients by the minute», helping meet day-to-day financial needs all the more efficiently and seamlessly, especially for SME clients that lack the in-house technology.
«I think [hybrid banks] can do quite well if they merge behavioral risk from the usage of the mobile facilities with credit risk so that their scoring model could actually be stronger,» he added. «I see a merger of sorts three to five years down the road.»
