RAM Ratings optimistic on digital bank licences in its rated portfolio

KUALA LUMPUR: RAM Ratings Services Bhd is optimistic on the digital bank licences recently secured by four RAM-rated entities although no immediate rating impact is expected.

The four entities in the digital bank licence consortiums were AEON Credit Service (M) Bhd with AA3/Stable/P1 rating, RHB Bank Bhd (AA2/Positive/P1), Salvare Assets Bhd (A1/Stable) and YTL Corporation Bhd (AA1/Negative/P1).

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It said only YTL Corp was a new entrant to financial services out of the four licensed entities in its portfolio while AEON Credit Service, Boost Holdings Sdn Bhd and RHB Bank were already existing players in the financial services market, presently serving different retail market segments.

"Boost provides financial services via its micro-financing arm, Axiata Digital Capital Sdn Bhd (or Boost Credit, the originator for Salvare Assets’ microfinance securitisation programme),” it said in a statement today.

Undoubtedly, it said the digital bank licence would enable these players to utilise digital technology to expand the scope of their products and services to reach a wider pool of the underserved and unserved segment.

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"How these challenger banks develop their differentiated strategies and scale-up, however, will determine how soon they are able to break even and become profitable.

"Operating a branchless model yields notable savings but players will also need to invest heavily in app development and marketing, apart from competing for talent in the fintech market,” the rating agency said.

Furthermore, RAM Ratings said the competition is already fierce with 11 licensed community credit companies offering online money lending that would contribute to higher customer acquisition costs.

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"While digital bank asset size is limited in the immediate term by regulations, we believe opportunities to scale are not if players are able to harness synergies within their ecosystem and offer a sticky value proposition that encourages their users to become borrowers or depositors of the digital bank,” it said.

RAM Ratings said it would continue to monitor developments in this space as part of the rating surveillance while the required capital investment is not expected to have a significant financial impact on the rated banking and corporate entities.

"We do not expect Boost’s digital licence to cause an immediate pivot in the financing strategy of the originator in Boost Credit’s sponsored securitisation transaction under Salvare Assets.

"In our view, any changes in the composition of the securitised portfolio, given the revolving nature of the transaction, will be adequately addressed by the terms of the structured transaction,” it added. - Bernama