Malaysia’s central bank to issue up to 5 digital banking licenses

Malaysia’s central bank is set to issue up to five digital banking licenses to qualified applicants looking to conduct either conventional or Islamic banking businesses in the country.

Photo credit: Kaihsu Tai

Bank Negara Malaysia (BNM) on Friday unveiled the proposed framework for the licensing of digital banks that intend to offer products and services to address market gaps in Malaysia’s underserved and unserved segments.

The framework serves as part of a series of measures adopted by the central bank to enable innovative integration of technology to the financial sector, according to a statement. BNM said that it looks to take a balanced approach to enable the admission of digital banks with strong value propositions while securing the stability of the financial system.

“To achieve these outcomes, an asset threshold of not more than 2 billion ringgit [about US$484 million] in the initial three to five years of operations will be applied,” the bank said. The measure serves as a “foundational phase” for licensees to demonstrate their viability and for the bank to measure their performance, it added.

During this phase, licensed banks will be subjected to simplified regulatory requirements on capital adequacy, liquidity, stress testing, and public disclosure requirements.

BNM also requires digital banks to maintain minimum capital funds, unimpaired by losses, of 100 million ringgit (US$24.2 million) and 300 million ringgit (US$72.6 million) thereafter.

See also: Singapore’s digital bank aspirants may face an uphill battle towards profitability

“Compared to Singapore and Hong Kong, Malaysia has ensured that new digital banks are able to access ATM networks and cheque infrastructure, acknowledging that some parts of the economy with unmet and unserved needs will still need access to these while using digital banks,” EY associate partner Varun Mittal told Tech in Asia.

Regarding participation from companies outside of the country, Malaysia clearly expressed a preference for local equity control to end debates about headquarter location, management, and operating and board control, Mittal added.

Currency converted from Malaysian ringgit to US dollar: US$1 = 4.13 ringgit.