Fitch Rtgs: Fintech Acquisitions May Affect Competition Among ASEAN Banks

(The following statement was released by the rating agency)
Fitch Ratings-Hong Kong/Jakarta/Singapore-18 January 2021: Recent acquisitions
of small banks in Indonesia by technology firms have highlighted the potential
for fintech entrants to shake up the competitive landscape for banking in
ASEAN over time, says Fitch Ratings. However, such moves are unlikely to pose
a material challenge to the biggest incumbent banks in the near term as
technology firms are first likely to target underserved segments of the
market. Media reports in January 2021 of a planned acquisition of Bank
Kesejahteraan Ekonomi (BKE) by Singapore-based Sea, and moves in December 2020
by Indonesia's Gojek to increase its stake in Bank Jago, underscore the
ambition of tech firms to deepen their involvement in the provision of
financial services. Fitch has previously argued
(https://www.fitchratings.com/site/re/10130094) that Indonesia and the
Philippines provide the largest market potential among ASEAN's six major
economies owing to their large unbanked populations and low levels of
household leverage. The acquisition of existing banks may help to smooth the
path for fintech firms wishing to offer financial services in Indonesia, which
has moved more slowly than some other ASEAN governments in developing
so-called “virtual banking” licence guidelines. Sea secured a virtual
banking licence in Singapore in December, but will still need approval from
the Indonesian financial service regulator, OJK, to acquire BKE wholly due to
limits on foreign ownership. Approval from OJK, if granted, may come with
conditions attached. Aspiring tech entrants could target markets in a swift
and scalable manner, without the overheads associated with operating physical
branches, by leveraging data analytics on their extensive customer bases
across their regional operations. This may pressure incumbent banks'
profitability over the medium term, with smaller banks and those that have
sub-par digital offerings at greater risk of losing out. However, the impact
is likely to be manageable in the near term, as we believe that these new
entrants will first target niche segments of the market, such as more
tech-savvy, younger demographics or the underbanked, where yields are often
higher and competition is still developing. Some established banks have also
invested heavily in their IT infrastructure in recent years, with the pandemic
providing added incentive for incumbents to accelerate their digitalisation,
potentially closing off openings for some new entrants. It remains unclear
which companies will ultimately be able to realise benefits from the growing
nexus between technology firms and banks. In markets such as Indonesia, there
is a risk that aspiring virtual lenders may misprice credit risks when
targeting the unbanked, notwithstanding their potentially more advanced data
analytics capabilities. In more developed markets with dominant and more
tech-savvy incumbents, like Singapore, they may face difficulty out-investing
conventional banks in digitalisation to offer distinctive value beyond niche
areas. The growth of fintech in ASEAN is also prompting closer regulatory
scrutiny. In markets where digital bank licensing frameworks are already
available, regulators have generally opted to introduce viability requirements
for new digital banks, designed to minimise the risks to financial stability
presented by the growth of new services and market entrants. This will add to
execution risks around technology firms' strategies for expanding into
financial services, a sector that generally has high regulatory bars and
compliance requirements. Fitch believes the tech firms that are likely to
provide more formidable competition for incumbent banks over the longer term
include those that have established platforms and user bases or are backed by
deep-pocketed corporates. These are more likely to be able to sustain the
heavy financial investment necessary to attain scale, maintain cost
competitiveness and survive the initial loss-making stages of a start-up.
Contact: Tamma Febrian Associate Director, Financial Institutions +65 6796
7237 Fitch Ratings Singapore Pte Ltd One Raffles Quay #22-11 Singapore Duncan
Innes-Ker Senior Director, Fitch Wire +852 2263 9993

Media Relations: Leslie Tan, Singapore, Tel: +65 6796 7234, Email:
leslie.tan@thefitchgroup.com
Wai Lun Wan, Hong Kong, Tel: +852 2263 9935, Email:
wailun.wan@thefitchgroup.com

The above article originally appeared as a post on the Fitch Wire credit
market commentary page. The original article can be accessed at
www.fitchratings.com. All opinions expressed are those of Fitch Ratings.


ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS.
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK:
HTTPS://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING
DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S
PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND
METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF
CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL,
COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM
THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER
PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS
OF THIS SERVICE FOR WHICH THE LEAD ANALYST IS BASED IN AN ESMA- OR
FCA-REGISTERED FITCH RATINGS COMPANY (OR BRANCH OF SUCH A COMPANY) CAN BE
FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH RATINGS WEBSITE.

Copyright © 2021 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its
subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824,
(212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole
or in part is prohibited except by permission. All rights reserved. In issuing
and maintaining its ratings and in making other reports (including forecast
information), Fitch relies on factual information it receives from issuers and
underwriters and from other sources Fitch believes to be credible. Fitch
conducts a reasonable investigation of the factual information relied upon by
it in accordance with its ratings methodology, and obtains reasonable
verification of that information from independent sources, to the extent such
sources are available for a given security or in a given jurisdiction. The
manner of Fitch's factual investigation and the scope of the third-party
verification it obtains will vary depending on the nature of the rated
security and its issuer, the requirements and practices in the jurisdiction in
which the rated security is offered and sold and/or the issuer is located, the
availability and nature of relevant public information, access to the
management of the issuer and its advisers, the availability of pre-existing
third-party verifications such as audit reports, agreed-upon procedures
letters, appraisals, actuarial reports, engineering reports, legal opinions
and other reports provided by third parties, the availability of independent
and competent third- party verification sources with respect to the particular
security or in the particular jurisdiction of the issuer, and a variety of
other factors. Users of Fitch's ratings and reports should understand that
neither an enhanced factual investigation nor any third-party verification can
ensure that all of the information Fitch relies on in connection with a rating
or a report will be accurate and complete. Ultimately, the issuer and its
advisers are responsible for the accuracy of the information they provide to
Fitch and to the market in offering documents and other reports. In issuing
its ratings and its reports, Fitch must rely on the work of experts, including
independent auditors with respect to financial statements and attorneys with
respect to legal and tax matters. Further, ratings and forecasts of financial
and other information are inherently forward-looking and embody assumptions
and predictions about future events that by their nature cannot be verified as
facts. As a result, despite any verification of current facts, ratings and
forecasts can be affected by future events or conditions that were not
anticipated at the time a rating or forecast was issued or affirmed.The
information in this report is provided 'as is' without any representation or
warranty of any kind, and Fitch does not represent or warrant that the report
or any of its contents will meet any of the requirements of a recipient of the
report. A Fitch rating is an opinion as to the creditworthiness of a security.
This opinion and reports made by Fitch are based on established criteria and
methodologies that Fitch is continuously evaluating and updating. Therefore,
ratings and reports are the collective work product of Fitch and no
individual, or group of individuals, is solely responsible for a rating or a
report. The rating does not address the risk of loss due to risks other than
credit risk, unless such risk is specifically mentioned. Fitch is not engaged
in the offer or sale of any security. All Fitch reports have shared
authorship. Individuals identified in a Fitch report were involved in, but are
not solely responsible for, the opinions stated therein. The individuals are
named for contact purposes only. A report providing a Fitch rating is neither
a prospectus nor a substitute for the information assembled, verified and
presented to investors by the issuer and its agents in connection with the
sale of the securities. Ratings may be changed or withdrawn at any time for
any reason in the sole discretion of Fitch. Fitch does not provide investment
advice of any sort. Ratings are not a recommendation to buy, sell, or hold any
security. Ratings do not comment on the adequacy of market price, the
suitability of any security for a particular investor, or the tax-exempt
nature or taxability of payments made in respect to any security. Fitch
receives fees from issuers, insurers, guarantors, other obligors, and
underwriters for rating securities. Such fees generally vary from US,000 to
US,000 (or the applicable currency equivalent) per issue. In certain cases,
Fitch will rate all or a number of issues issued by a particular issuer, or
insured or guaranteed by a particular insurer or guarantor, for a single
annual fee. Such fees are expected to vary from US,000 to US,500,000 (or the
applicable currency equivalent). The assignment, publication, or dissemination
of a rating by Fitch shall not constitute a consent by Fitch to use its name
as an expert in connection with any registration statement filed under the
United States securities laws, the Financial Services and Markets Act of 2000
of the United Kingdom, or the securities laws of any particular jurisdiction.
Due to the relative efficiency of electronic publishing and distribution,
Fitch research may be available to electronic subscribers up to three days
earlier than to print subscribers.For Australia, New Zealand, Taiwan and South
Korea only: Fitch Australia Pty Ltd holds an Australian financial services
license (AFS license no. 337123) which authorizes it to provide credit ratings
to wholesale clients only. Credit ratings information published by Fitch is
not intended to be used by persons who are retail clients within the meaning
of the Corporations Act 2001Fitch Ratings, Inc. is registered with the U.S.
Securities and Exchange Commission as a Nationally Recognized Statistical
Rating Organization (the 'NRSRO'). While certain of the NRSRO's credit
rating subsidiaries are listed on Item 3 of Form NRSRO and as such are
authorized to issue credit ratings on behalf of the NRSRO (see
https://www.fitchratings.com/site/regulatory), other credit rating
subsidiaries are not listed on Form NRSRO (the 'non-NRSROs') and therefore
credit ratings issued by those subsidiaries are not issued on behalf of the
NRSRO. However, non-NRSRO personnel may participate in determining credit
ratings issued by or on behalf of the NRSRO.