Philippine lender RCBC to set up digital bank after SMBC investment


MANILA – Philippine lender Rizal Commercial Banking Corp. plans to set up a digital banking arm and increase investment in technology after securing $ 93.9 million in new capital from Japanese firm Sumitomo Mitsui Banking Corp.

The move comes as traditional lenders like RCBC face growing competition from agile and digital-savvy startups launching mobile financial services with the backing of Philippine regulators.

RCBC is incubating “at least one” company that could be set up to apply for a digital banking license from the central bank, President and CEO Eugene Acevedo told reporters on Tuesday, without disclosing a timeline. One of those units is DiskarTech, which operates a banking app launched last year, he said.

RCBC’s charge in digital banking follows news that SMBC, Japan’s second-largest bank, is taking a 4.99% stake in the Philippine lender. The deal was first reported by Nikkei on Monday.

The new capital will help fund technology initiatives as more people turn to their cellphones, especially during the coronavirus pandemic, for financial services.

A sign of the direction the industry is taking, RCBC closed 70 of its roughly 500 branches last year, and not just because of COVID-19, according to Acevedo. “What really happened is that customer behavior forced us to follow them,” said the CEO, citing a similar trend in Europe.

The RCBC chief also said that the low interest rate environment that has reduced lender margins is prompting banks to make drastic cost cuts.

“The only way for us to survive is to cut operating expenses by a significant percentage, drastically cut them actually,” Acevedo said. “The way to do this is to use the mobile apps as our main factory for maintenance [and] engage customers because the cost of the mobile app is much lower than that of a traditional business. “

The central bank of the Philippines wants more Filipinos to be included in the formal financial sector through fintech. About two-thirds of the Filipino population do not have a bank account, and one-third of municipalities do not have a banking presence.

Since the introduction of the new category at the end of last year, the central bank has so far issued licenses to three digital banks, which must have at least 1 billion pesos ($ 20 million) in capitalization but are not allowed to open physical branches.

Local fintech Voyager Innovations – which raised $ 167 million on Monday from shareholders including KKR, Tencent and telecom PLDT for its entry into digital banking – and South African digital bank Tyme – in partnership with local conglomerate JG Summit Holdings – said they will apply for licenses. Filipino lender Union Bank has said it wants to get a license as well.

In addition to strengthening its own funds, RCBC, the sixth largest private bank in the Philippines in terms of assets, intends to find synergies with SMBC, particularly in banking services for individuals and businesses. Among Philippine banks, RCBC already has many relationships with Japanese clients.

SMBC has made larger investments in Vietnamese and Indonesian financial institutions, as it turns to Southeast Asia amid slowing growth in Japan. RCBC, which is controlled by the Yuchengco group and 22% owned by Cathay Financial Holdings of Taiwan, said it could approach its new Japanese partner for future financing needs.

“For the moment, both parties are satisfied with the 5% stake but (…) what is important in this transaction is that if there is a future need for capital, we now have a shareholder extra that we can approach to discuss it, ”says Jomi De Veras.

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