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Higher interest rates make life harder for APAC digital banks: Fitch
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Publicly listed digital-bank Bank Jago launches a mobile app on April 15, 2021. (Courtesy of Bank Jago)
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igital banks in Asia-Pacific (APAC), including Indonesia, will face difficulties in achieving financial viability amid monetary tightening across the region, a report from Fitch Ratings says.
“A softer economy could also affect the banks' target customers disproportionately, raising asset-quality risks,” the financial-services company states in the report published on Wednesday.
“We expect the current monetary-policy tightening cycle will generally support bank-credit profiles in Asia, to the extent that higher interest rates lift net interest margins (NIMs),” the financial-services company stated.
The United States-headquartered credit-rating firm also warned that NIM improvement for digital bank entrants was at risk of being constrained by “more limited pricing power as they seek to boost their deposits and lending business to achieve scale and profitability”.
The report mentions Volt Bank’s exit in Australia, insinuating that similar problems could affect other new digital banks reliant on future funding for growth amid reduced valuations and investor appetite.
More mature digital banks in the region, meanwhile, would face slowing growth, as they tended to contend with increased asset-quality risks and funding costs.
“Nonetheless, a number of them are already profitable, helped in many cases by parental linkages providing access to large existing customer bases, easing the task of achieving scale. Some have also been able to grow through identifying lucrative niche segments,” the report says.
