The Bank of Thailand has decided to grant only three virtual bank licences initially, saying the number is suitable to ensure stability of the local financial market and protect depositors from risk associated with new businesses.
The bank is scheduled to finalise the licensing regulations this month and then submit them to the Finance Ministry for approval, governor Sethaput Suthiwartnarueput said on Thursday.
Licence applications are expected to open in 2024 and official business operations would begin in 2025.
The central bank believes three operators will be sufficient to generate competition and also to enable effective supervision.
Even though the new virtual banks would not be classified as domestic systemically important banks (D-SIBs), public confidence and the overall financial system would be affected if any risk or problem occurs, Mr Sethaput said.
For example, the collapse of Silicon Valley Bank sent shockwaves through the financial industry, with global stocks plunging and public confidence shaken.
The Bank of Thailand has studied virtual bank businesses abroad and found that many were unable to survive, with their exits affecting depositors.
“We want to gradually open for virtual bank licences, and closely monitor the business to ensure that they can survive and respond to the central bank’s key objective in developing the virtual banking industry,” Mr Sethaput said.
One of the regulator’s goals is to see new business models emerge that can improve financial inclusivity for unserved and underserved customer segments.
The Bank of Thailand has set the bar fairly high for applicants, at a minimum registered capital of 5 billion baht, to ensure they are big and strong enough to apply for a licence, he said.
The required registered capital is 8 billion baht for conventional small-sized banks and 50 billion for D-SIBs, on average.
In the initial stage of operation, the prospective virtual banks can expect to spend heavily, particularly on customer acquisition and IT investment. Therefore, business survival will be a key concern.
The successful virtual banks, such as KakaoBank in South Korea and Starling Bank in the UK took four and six years, respectively, to make a profit.
Mr Sethaput said the central bank would supervise virtual banks by promoting reasonable pricing under open competition. More players will not always guarantee low interest rates, as rates also depend on credit risk.
For example, he said, there are a lot of players in the auto loan market who charge at almost the ceiling rate for borrowers with high credit risk.
In Thailand, there are 17 conventional banks with full-branch service and three virtual banks in the pipeline.
South Korea has 52 conventional banks plus three virtual banks. The respective figures are 34 and four in Singapore, and 42 and three in Malaysia.