Financial services company iFast is making another attempt at a digital banking licence, this time in Malaysia. Competition will be stiff, notes CGS-CIMB Research analyst Andrea Choong, with a reported 40 applicants vying for up to five licences.
In a June 30 note, Choong is maintaining “buy” on the company, the best-performing stock on the Singapore Exchange (SGX) last year, with an unchanged target price of $8.00.
“We expect positive share price movement on this news,” notes Choong.
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Leading a consortium, iFast has submitted an application for a digital banking licence in Malaysia. iFast will own a 40% stake in the digital bank, if successful.
The consortium’s Malaysian partners include Koperasi Angkatan Tentera Malaysia, one of the largest co-operatives in Malaysia; THZ Alliance, a private investment holding company founded by Y.M. Tengku Dato' Dr Hishammudin Zaizi, the first cousin of the Sultan of Selangor; and Lee Thiam Wah, founder and major shareholder of 99 Speed Mart, a homegrown grocery chain with 1,900 retail outlets.
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The other non-domestic partner of the consortium is Yillion Fintech, which provides core banking technology and capabilities for Yillion Bank, one of the four digital banks in China.
Inclusive of iFast CEO Lim Chung Chun’s stake, the beneficial equity ownership of the consortium will be approximately 57% Malaysian, notes Choong. “This implicitly comes in line with Bank Negara Malaysia’s (BNM) preference for the controlling equity interest in the proposed licenced digital bank to be held by Malaysians,” she adds.
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The consortium will target the bottom 40% (B40) population, says Choong. The consortium seeks to offer financial solutions such as free life insurance, interest-free loans for daily necessities, and micro investments to the B40 segment, while being profitable.
BNM will be issuing up to five digital banking licences by 1Q2022. The digital bank licencees will be able to serve both retail and corporate customers.
Similar to the process in Singapore, successful licencees will operate in a Foundational Phase (for a minimum of three years, up to a maximum of five years), and will be subject to an asset limit of RM3 billion ($970 million).
During the Foundational Phase, the minimum capital fund amount is set at RM100 million ($32 million). Upon the end of this phase, the minimum requirement will be raised to RM300 million ($97 million).
Choong notes that capital fund requirements for digital banks in Malaysia are lower than the RM2 billion ($646 million) requirement for domestic banking groups.
In addition, a minimum total capital ratio of 8% will be required for digital banks, consistent with the requirement for other domestic financial institutions.
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“We think iFast fulfils key considerations for a licence. We think that iFast’s consortium is well-positioned to contend for the licence given its financial standing, technical expertise, and domestic presence,” writes Choong.
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Companies reported to be applying for a licence include Axiata-RHB, Grab, Razer, Sunway-Linklogis (Tencent-backed), BigPay and Green Packet-Zico-M24 Tawreeq.
As at 12.55pm, shares in iFast are trading 13 cents higher, or 1.60% up, at $8.28.
