Global credit watcher Fitch Ratings said Monday that digital banks are unlikely to significantly affect the
Philippine banking sector’s competitive dynamics despite their rapid growth.
Fitch said in a report the Philippines offers significant potential for digital challenger banks due to its large
unbanked population. However, the segment’s market share remains modest, and it is unlikely to shake
competitive dynamics in the medium term.
Fitch said the impact of digital banks on the ratings of incumbent banks is expected to be limited. As of
end-June 2023, digital banks’ aggregate market share of system deposits was still less than 0.4 percent
despite their rapid growth over the last two years.
Relatively low average deposits per customer also suggest that digital banks have yet to capture a
significant chunk of their depositors’ operating accounts.
Fitch expects digital banks to continue to compete aggressively for deposits over the next two years as
they seek to refine their business models and build scale. However, the pricing-focused strategy of
offering promotional deposit rates as high as 15 percent is unlikely to be sustainable in the long run.
Increased digitalization has lowered barriers to account-switching, making it harder for digital banks that compete solely on pricing to retain customers.
Fitch said digital banks backed by established corporates with complementary business lines and
extensive customer bases will enjoy a competitive advantage in the longer run.
Meanwhile, robust economic growth prospects for the Philippines should provide some support to
borrower-repayment capacity and asset quality in 2024-2025 for both digital and incumbent banks.
Fitch expects real GDP to expand by 6.3 percent a year on average over the period. However, digital
banks’ loan books and customer base mean they will be more exposed to economic shocks.
