BSP sets P1 billion capital floor for banks shifting to digital model

MANILA, Philippines — Thrift, rural and cooperative banks that increasingly operate like digital banks will be required to maintain at least P1 billion in capital under new rules aimed at ensuring that rapid technology-driven expansion does not outpace their ability to manage risks.

The Bangko Sentral ng Pilipinas (BSP), through Circular 1240, said existing banks determined to have a business model similar to a digital bank would be given six months from receipt of the central bank’s notice to comply with prudential requirements applicable to digital banks.

The P1-billion minimum capital requirement is the same threshold currently imposed on licensed digital banks.

The rules cover thrift banks, rural banks and cooperative banks that the BSP determines are already operating under a business model similar to a digital bank, or whose capital and risk management systems are no longer commensurate with the scale and risk profile of their operations.

Banks using digital platforms may also face additional requirements if they post rapid growth in either loans or deposits. The BSP defined a significant increase as quarterly growth of more than 30 percent for two consecutive quarters.

Depending on a bank’s risk profile, the BSP may require additional capital, restrict certain activities or the introduction and marketing of new digital products and services and impose enhanced supervisory reporting.

The central bank may also direct banks to strengthen risk management and internal controls, including through automated anti-money laundering systems and real-time fraud monitoring and detection tools.

The new framework likewise applies to acquisitions intended to transform an existing thrift, rural or cooperative bank into a technology-driven lender.

In such cases, the BSP will require compliance with prudential standards applicable to digital banks, including the P1-billion minimum capital requirement, at the time of application.

The circular comes as more traditional banks use digital platforms to expand their reach without necessarily holding a digital banking license, blurring the distinction between conventional and fully digital banking models.

At the same time, the BSP said it could issue additional digital bank licenses, including by allowing existing thrift, rural and cooperative banks to convert into digital banks, subject to its licensing framework.

Applications will be assessed based on factors including the proposed business model, governance framework, risk management and control systems, financial and operational capacity, technological capabilities and strategic value proposition.

There are currently seven licensed digital banks in the Philippines.

The circular also provides that digital banks may offer products and services through cash agents and other qualified service providers.