RAM Ratings optimistic on upside potential of digital banking businesses of new licensees in its rated portfolio

Published on 27 May 2022.

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RAM Ratings views positively the digital bank licences recently secured by RAM-rated entities, although no immediate rating impact is expected. Successful bidders will undergo a period of operational readiness which will be validated by the central bank before operations commence. 

Of the four licensed entities in RAM’s portfolio, only YTL Corporation Berhad (YTL) is a new entrant to financial services. AEON Credit Service (M) Berhad (AEON Credit), Boost Holdings Sdn Bhd (Boost) and RHB Bank Berhad (RHB Bank) are already existing players in the financial services market, presently serving different retail market segments. Boost provides financial services via its micro-financing arm, Axiata Digital Capital Sdn Bhd (or Boost Credit, the originator for Salvare Assets Berhad’s microfinance securitisation programme).

* Financial institution rating

Undoubtedly, the digital bank licence will enable these players to utilise digital technology to expand the scope of their products and services to reach a wider pool of the underserved and unserved segment. The ubiquity of smartphones, evolving customer expectations and a national drive towards a cashless society make market prospects for digital retail lending bright, especially as the gig economy grows, blurring the lines between businesses and consumers.

How these challenger banks develop their differentiated strategies and scale up, however, will determine how soon they are able to break even and become profitable. Operating a branchless model yields notable savings but players will also need to invest heavily in app development and marketing, apart from competing for talent in the fintech market. With 11 licensed community credit companies offering online money lending, competition is already fierce. This will contribute to higher customer acquisition costs. It will be interesting to see, therefore, how the digital banking landscape will evolve alongside conventional banking and fintech lending. While digital bank asset size is limited in the immediate term by regulations, we believe opportunities to scale are not, if players are able to harness synergies within their ecosystem and offer a sticky value proposition that encourages their users/patrons/subscribers to become borrowers/depositors of the digital bank. 

AEON Credit, together with its Japanese parent company, AEON Financial Services Co Ltd, and US-based technology partner, MoneyLion Inc., is one of two consortia to win the Islamic digital bank licence. The former two entities each have a 45% initial interest in the joint venture while the latter holds the remaining 10%. Having been in the Malaysian market for more than two decades, AEON Credit is one of the largest non-bank financial institutions in the consumer financing market, offering easy payment schemes, personal financing, auto financing and the issuance of credit cards, with 67% of its business shariah-compliant. It is also a leading motorcycle financier in Malaysia, financing an estimated 25% of new motorcycle purchases in the country. Not only will the consortium be able to tap into AEON’s ecosystem of over 4 mil customers (including customers of sister company AEON Co. (M) Bhd, which operates retail stores and a supermarket chain), it also has partnerships with more than 13,000 affiliated merchants and appointed retail stores throughout Malaysia. AEON Credit’s sizeable share of borrowers in the bottom 40% income group (B40) – an estimated 41% of AEON Credit’s outstanding receivables is directed to borrowers earning less than RM3,000 monthly – would give it a head start in meeting Bank Negara Malaysia’s financial inclusion agenda. 

Widely known for its e-wallet, Boost is the fintech arm of Axiata Group. The Boost e-wallet reported over 10 million users and close to 500,000 merchant touchpoints as at end-2021. Through Boost Credit, the Group also provides AI-based micro-financing and micro-insurance to micro, small and medium enterprises (MSMEs), although a large part of its portfolio mainly comprises short-term financing. As part of the Axiata Group, Boost will be able to take advantage of the rest of the Boost ecosystem (including Boost Biz, its merchant business, and Boost Connect, a payment facilitation platform) and the larger Group by partnering with corporates to provide seamless and quick financing approval. In the fintech market, Boost Credit was one of the first in the domestic lending industry to deploy machine learning, which helped it to increase its fund utilisation while managing credit risk. Boost Credit’s use of data analytics – particularly in credit assessment and loan approvals – will be an advantage, especially considering the lack of a credit history for the unserved market. Since kicking off operations, Boost Credit has disbursed around RM1.0 bil in Malaysia.

RHB Bank is Malaysia’s fourth largest bank (by asset size), with an extensive customer base and notable market shares in residential property financing (9.8%) and SME financing (9.6%) as at end-September 2021. Being in a regulated industry, RHB would provide bank operations know-how to the consortium, including risk management and regulatory compliance. The existing businesses of both Boost and RHB Bank (respective 60% and 40% shareholdings in the consortium) already have various digital financial offerings. As a digital bank, RHB Bank will be able to offer fully integrated banking services to the unbanked and underserved segment.  

Meanwhile, YTL (Malaysian conglomerate with key business activities in infrastructure, property, hotels and technology), via subsidiary YTL Digital Capital Sdn Bhd, has partnered with SEA Group for the digital bank licence. The Singapore-based SEA Group is the parent company of Shopee, a leading e-commerce platform in Southeast Asia and Taiwan. This will be YTL’s first venture into financial services. The SEA Group, via SeaMoney, has various digital payment and financial services products including mobile wallet services, payment processing and credit offerings across seven markets. The digital bank will be able to leverage on Shopee’s expertise in setting up digital banks in Singapore and Indonesia. In the near to immediate term, the contribution to YTL from this venture is expected to be small. Innovative solutions, technology adoption and creative means to leverage users on the Shopee platform and YTL’s YES mobile customer base will drive longer-term mass uptake.

The initial capital investment for the digital banking licence in the “foundational phase” of three to five years is RM100 mil (unimpaired by losses). By the end of this phase, the minimum amount of unimpaired capital funds will increase to RM300 mil. While the required capital investment is not expected to have a significant financial impact on the rated banking and corporate entities, we will continue to monitor developments in this space as part of our rating surveillance. How the respective digital banking propositions will complement or be differentiated from the existing financing portfolio profiles of the entities would be particularly pertinent. 

We do not expect Boost’s digital licence to cause an immediate pivot in the financing strategy of the originator in Boost Credit’s sponsored securitisation transaction under Salvare Assets. In our view, any changes in the composition of the securitised portfolio, given the revolving nature of the transaction, will be adequately addressed by the terms of the structured transaction.


Analytical contacts
Sophia Lee
(603) 3385 2619

Lim Chern Yit
(603) 3385 2528

Davinder Kaur Gill
(603) 3385 2525


About RAM Rating Services Berhad (RAM Ratings)

Established in 1990, RAM Ratings is a leading credit rating agency registered under the Securities Commission’s Guidelines on Registration of Credit Rating Agencies, 2011. In addition to the provision of credit ratings for corporate bonds and sukuk and their issuers, RAM Ratings also provides research and publications on Islamic finance, fixed income and macro-economic and industry analysis as well as data analytics relating to credit risk, counterparty assessments and other related domains. 


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