Digital Banks: how do they affect Malaysian real estate?January 28, 2020 / By
Following the footsteps of various developed nations and in line with the advancement of fintech, the Central Bank of Malaysia (BNM) has announced plans to issue up to five licences for digital banks. A recent PwC poll indicates how positively Malaysians, Singaporeans and Hong Kongers view the prospects for digital banks. Indeed, the neighbouring island state has already seen strong interest in the digital bank licenses they plan to grant, including from South-East Asia’s biggest unicorn, Grab.
Digital banks typically offer a full range of banking services on the online platform. But the asset ceiling of RM2 billion set on digital banks may likely lead them to offer such services—including online transactions, financing or credit services, financial consultations, etc. — at a smaller scale. Traditional banks, having already established their online services, are not likely to redundantly apply for the new digital bank licence. E-wallet operators and other businesses dealing with consumers’ day-to-day transactions, such as telcos, are the ones who may show high interest in digital banking licences.
The regulation and framework proposed by BNM seeks to moderate any disruption new digital financial services providers could cause to the traditional banking sector. Regulations such as the aforementioned asset ceiling of RM2 billion within 3 to 5 years of operation, and limiting physical bank branches to a sole physical office, will help to differentiate digital banks and partially protect traditional banks. While the potential impact digital banks can have on the traditional banking sector has been widely talked about, its impact on the real estate sector in Malaysia is something not many have discussed.
Our view is that digital banks could create positive multiplier effects on the economy. Digital banks do not require a physical presence and focus mainly on online services, and this opens the opportunity for them to reach to communities underserved by traditional banks. Micro-financing offered by digital banks can spur economic activities, especially among young entrepreneurs and other small and medium enterprises (SMEs). Subsequently, these higher economic activities may increase the occupancy rate of commercial and industrial spaces, albeit at a modest level in the first few years. Additionally, other services at a smaller scale, such as micro personal loans or low-limit credit services, can spur activities in the retail sector, as well as increase awareness of loan management and importance of building a credit score among youths or low-income earners. These will have positive long-term impacts on the economy.
While digital banks may not require much office space, they are likely to require high-capacity and high-quality online services. This translates to digital banks’ demand for data centres. Consequently, demand for space by data centres, due to their likely increasing operations, will spell positive outcomes for the real estate sector. Thus, while it is clear that we should not expect immediate boost in demand for workspace as a result of the launch of digital banks, we should consider other potential outcomes, including infrastructure development, more-efficient financial services, establishment of SMEs, higher consumer spending, etc., all of which will benefit the real estate sector overall.