Despite their rapid growth in the Philippines over the last two years, digital banks hold a minor aggregate market share of system deposits at 0.4 percent as of June 2023, according to Fitch Ratings.

The credit rating agency said that given the relatively lower share of system deposit, the impact of digital banks in the overall banking sector in the country is expected to be minimal in the medium term.

Digital banking growth is fueled by aggressive competition for deposits, often through high promotional rates. However, Fitch believes this strategy is unsustainable in the long run. Digital banks with corporate backing are deemed to have a competitive edge due to a broader customer base and may experience better growth as a result.


In addition, these digital banks predominantly lend to higher-yielding but riskier segments like unsecured personal and SME loans. Most are expected to incur losses in the near term due to high credit costs and ongoing investments in building their customer base and franchises.

In an interview with ANC, Fitch Director for Asia-Pacific Financial Institutions Tamma Febrian expressed similar sentiments about the impact of the existing digital banks in the country, noting their rapid growth and aggressive yet unsustainable strategies. He said moderation is needed going forward.

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