Fitch Ratings believes there is significant interest and momentum in Thailand's virtual bank application process, even though the timeline has been extended.
The ratings firm acknowledged it would take some time for new banks to garner significant scale and achieve profitability, particularly if regulatory restrictions such as retail loan rate caps remain unchanged.
The Bank of Thailand recently published its revised consultation paper on the proposed virtual bank licences.
The process is slightly delayed, with the three licence winners now expected to be announced in late 2024 instead of a previous target of mid-2024.
The licences represent both a threat and an opportunity for local commercial banks, according to Fitch.
Existing banks can apply for the licences, which offer an avenue for growth, albeit in higher-risk underbanked client segments.
However, the presence of new banks could increase competition, particularly for retail deposits and lending.
Fitch said it expected no significant changes in the sector composition and franchises of the major banks in the near to medium term. Existing banks have invested in expanding their digital presence over the past few years.
There is widespread use of mobile banking apps and intense competition for fee income. Fitch said it expects virtual bank balance sheets to remain small in the early years.
The environment is not supportive of rapid growth by new banks in the near term, said Fitch. The retail segment is highly leveraged, with household debt at 87% of GDP as of the end of 2022.
Furthermore, retail lending products are subject to interest rate ceilings, which were lowered during the pandemic, with rates capped at 16% for credit cards and 25% for personal loans.
Fitch said it expects the current rate ceilings to curtail growth in new retail lending, particularly for higher-risk groups. The firm projects both local and international institutions to take part in the bidding.
Over the medium term, new virtual banks could create niches in the local market and help to increase the level of innovation in the sector, said Fitch.
The new banks also represent growth opportunities for the groups that gain the new licences, said the ratings firm.
Many local banks are actively seeking new growth segments, such as in overseas markets or in non-bank financial institutions.