Incumbent banks unlikely to take hit by neobanks' deposit cap raise: Fitch

Digital banks could face challenges beyond funding.

The recent increase in deposit caps for Singapore's digital start-up banks is less likely to impact the profitability of the country's dominant incumbent banks, Fitch Ratings reported.

Despite this increase, the size of digital bank deposits remains small compared to the three largest local banks, DBS Group Holdings, Oversea-Chinese Banking Corporation, and United Overseas Bank, which account for 65% of all Singapore-dollar deposits. 

These dominant banks have over S$500b of deposits, far surpassing the capped S$100m of GXS Bank and MariBank.

“The three also maintain a significant liquidity surplus with central banks that bears low liquidity risk and can be readily deployed if needed to support asset growth as opportunities arise,” Fitch Ratings said in the report.

The dominant banks have abundant liquidity and strong deposit inflows, reducing the pressure to compete for deposits and supporting higher net interest margins (NIMs) and profitability. 

Fitch expects these banks to sustain healthy profitability in 2024, even as global interest rates decline and NIMs recede.

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Recently, GXS and MariBank – two digital full bank license holders – have raised their individual savings account cap to S$75,000, indicating that the S$50m cap on aggregate deposits for each digital bank may have been lifted by regulators.

While digital banks may see a substantial rise in their deposit holdings, as observed with Trust Bank, Fitch believes it won't significantly impact competition dynamics in the next few years. The higher savings account caps align with Singapore's existing deposit insurance limit, offering depositors protection.

However, Fitch points out that digital banks could face challenges beyond funding.

“These include attaining sufficient scale to achieve profitability, gaining access to bankable customers and asset origination opportunities, and developing a range of products that are priced competitively after adjustment for the relevant credit risks.” Fitch added.

The dominant banks' large loan books outside Singapore indicate limited earnings prospects in the small and saturated domestic market.