OCBC in talks with Keppel and Validus to form digital-bank consortium

SINGAPORE'S second-largest bank OCBC Bank is understood to be in firm talks with Keppel Corporation, peer-to-peer lender Validus Capital, and Vertex Ventures, to form a digital-bank consortium.

The partners are in talks to apply for a digital wholesale banking licence.

In a statement, a Keppel spokesperson told The Business Times: "We are always exploring opportunities and will make an announcement if there are any material developments." OCBC and Validus Capital declined to comment. 

It is understood that OCBC is expected to take an equity stake, not open up its balance sheet. OCBC has historically been active in the small- and medium-enterprise (SME) lending space, and it is expected that this move could bolster their position in this segment.

At a separate press briefing in October, OCBC's chief operating officer Ching Wei Hong said the bank is "actively chatting" with potential partners as it mulls a digital banking licence in Singapore. 

Should OCBC decide to dip its toes into the digital banking scene, the bank will face direct competition from its own virtual entity, The Business Times (BT) reported in October. "We have to accept that there will be cannibalisation. But on the other hand, the mothership should also be in a position to go out and compete," said Mr Ching during the press briefing.

In a Sept 25 report, CGS-CIMB wrote that it "strongly believes" OCBC will be part of a consortium bidding for a digital banking licence.

"In the local sphere, DBS and UOB have rolled out standalone digital banks in regional markets and have stepped up their efforts in digitalising processes," said analyst Andrea Choong in the report. "OCBC is a laggard in this respect, but we strongly believe it will be part of a consortium in the run for a licence come end-2019."

Keppel controls telco operator M1, and also works with smaller vendors in the offshore-and-marine space.

Against this context, it can refer vendors to Validus' unique model of lending to SMEs with top corporate customers behind them. Validus had earlier told BT in a separate interview that it works with several large corporates in Singapore, including large shipyards and the country's biggest logistics and transport provider, to tap the pool of vendors that hold contracts with these blue-chip firms. 

These large corporates want to ensure that their small contractors and suppliers have adequate financing to complete projects on schedule. In effect, Validus is looking at the top corporates' risk profile - which tends to be lower than that of the small vendor supplier - to give the SMEs a lower borrowing rate.

Applications for digital-banking licences in Singapore must be submitted by the end of 2019.