MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) has released a draft circular outlining progressive prudential requirements for thrift, rural and cooperative banks that are increasingly shifting to digital operations.
The proposed regulation, once approved by the Monetary Board, will classify digital-centric banks into three tiers based on the scale and maturity of their digitalization, with each tier subject to progressively higher capital and compliance standards.
“The progressive prudential requirements aim to foster innovation while ensuring the safety and soundness of the banking system,” the BSP said in the draft circular.
“This likewise promotes a level playing field for both incumbents and new entrants as banks navigate the opportunities and challenges brought about by rapid digitalization in the banking sector,” the central bank said.
Banks will be assessed using several indicators, including their ability to offer end-to-end digital onboarding and loan services, the percentage of customers and accounts served digitally as well as the volume and value of electronic payments and financial services (EPFS) transactions.
Under the proposed framework, banks in Tier 1 must have an EPFS license and meet at least one of the following: 30 percent of their customers onboarded digitally, 30 percent of their balances sourced digitally or 30 percent of financial transactions classified as EPFS.
These banks will be required to maintain a minimum capital of P200 million and comply with leverage ratios and automated systems for anti-money laundering (AML) and fraud monitoring.
Tier 2 banks must meet higher thresholds – at least 50 percent in digital customers, balances or transactions. These institutions will be required to hold P500 million in capital for rural and coop banks and P600 million for thrift banks.
The highest classification, Tier 3, includes banks with at least 75 percent of customers, balances or transactions sourced digitally. These banks must maintain a minimum capital of P1 billion and are “eligible for conversion to a digital banking license.”
“For this purpose, the BSP may require a digital-centric thrift, rural or coop bank under Tier 3 to convert to a digital bank,” the regulator said.
Banks are required to conduct a self-assessment of their level of digital centricity within three months from the effectiveness of the circular. Those falling into any of the three tiers will be granted a transition period to meet the new requirements.
“Once a bank is classified under a specific Tier, it shall no longer be permitted to adopt the capitalization or risk management requirements applicable to lower Tiers, even if its level of digital centricity subsequently declines,” the BSP warned.
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