Singtel edges out Grab in attracting deposits as digital banks: CGS-CIMB

MORE customers may be willing to park money with Singtel than Grab, a CGS-CIMB report showed, with the brokerage estimating that 4-11 per cent of deposits from the domestic banking unit are at risk from being taken from incumbent banks, and absorbed by the upcoming new digital banks in Singapore.

The brokerage surveyed 139 respondents from various industries, with a larger proportion of them from the finance industry. Those aged between 30 and 50 years made up 75 per cent of the sample pool.

In offering a slight premium - that is, another 30 basis points (bps) - to market rates given the digital bank's need to attract deposits, 45 per cent of the respondents were willing to place fixed deposits with Singtel compared to just 33 per cent for Grab. Only two choices were provided to survey respondents in this case.

Testing for depositors' sensitivities to interest rates with an additional 50 bps premium over the rates offered by the digital banks above, 55 per cent of those who were previously unwilling to place fixed deposits with Singtel would now in this case, compared to just 40 per cent for Grab, the brokerage said.

"We noted a clear difference in the trust levels accorded to Singtel and Grab, based on their willingness to use these entities as a depository institution given an identical set of circumstances," said CGS-CIMB analyst Andrea Choong in the report.

This comes even as survey respondents ranked "shareholders" as the least important consideration in deciding on a digital bank. "Without customers realising the disconnect in their thoughts and behaviour, we are convinced that the ownership composition of digital banks - whether government-linked or of conventional banking parentage - could be a key factor in ramping up on growth, even more so than from the advent of higher interest rates."

To be clear, even with a premium, the average fixed deposit amount that customers would be willing to place in new digital banks - whether Grab or Singtel in this case - was relatively small. Among those willing to place fixed deposits in these digital banks, on average, 67 per cent of respondents were willing to place less than S$20,000. Only 10 per cent would place more than S$50,000.

The grab for deposits is a key factor in moving the needle for digital banks, as digital full bank applicants are gunning for the cheap retail deposits that incumbent banks now access for funding needs. The Monetary Authority of Singapore, in setting out the guidelines for digital banks here, had made clear that digital bank applicants cannot engage in predatory pricing behaviour, and must show a path towards profitability in their five-year financial projections.

At this point, DBS, OCBC and UOB's Singdollar deposits account for 24 per cent, 17 per cent and 20 per cent of total deposits in the domestic banking unit - the unit that mainly accounts for Singdollar deposits. Though CGS-CIMB estimated that 4 to 11 per cent of deposits from the domestic banking unit are at risk from being taken from the incumbent, it also acknowledged that this simulation does not take into account "retaliatory measures" by incumbent banks and the effects of further Fed rate cuts.

The brokerage added that DBS, OCBC and UOB have ramped up on their digital spending in recent years, building application programming interfaces, or APIs, for a more seamless integration with third-party developers, lower costs, "and at the heart of it all, to improve customer experiences". Both DBS and UOB have launched standalone digital banks in the region, with OCBC "a laggard in this sense". "We strongly believe that it (OCBC) will be part of a consortium bidding for the virtual banking licence by the end-2019 application deadline."

Furthermore, 42 per cent of respondents listed cybersecurity as their main concern when choosing to use digital banks or otherwise, suggesting that banks are not taken for granted to have superior cybersecurity measures in place given their regulatory oversight, added Ms Choong. "This is still a point of concern among consumers."

The brokerage kept its "neutral rating" on Singapore banks.