Finalists of Singapore digital banking license

On 18 June 2020, Monetary Authority of Singapore (“MAS”) announced that 14 out of the 21 applications met the eligibility criteria required for Singapore digital bank license. The eligible applicants, comprising five digital full bank license (“DFB”) applicants and nine digital wholesale bank license (“DWB”) applicants, will proceed to the next stage of assessment.

Despite MAS did not disclose who are the 14 contenders that went on to the next round of application, some sources mentioned that the Consortium formed between Grab and Singtel, who are in the bid for DFB, has moved on to the next round of assessment. Another Consortium formed by MatchMove and Singapura Finance, who are in the bid of DFB, also is rumoured to have moved on the next round of the application.

Meanwhile, iFAST Corporation Limited has released a press release on 18 June 2020, announcing that the company is among the 9 digital wholesale bank applicants to progress to the next stage of assessment.

In November, MAS announced that Singapore will have 5 digital bank licensees by end of the year. And as we approach the end of 2020, let’s take a look at some of these shortlisted companies who might stand a chance to clinch the digital banking license.

Singapore Telecommunications Limited (SGX: Z74)

Singtel is Asia's leading communications technology group, providing a portfolio of services from next-generation communication, technology services to infotainment to both consumers and businesses.

For consumers, Singtel delivers a complete and integrated suite of services, including mobile, broadband and TV. For businesses, Singtel offers a complementary array of workforce mobility solutions, data hosting, cloud, network infrastructure, analytics and cybersecurity capabilities.

Revenue for Singtel

For Singtel’s trailing 12-month performance, its revenue came in at S$15.7 billion, which is a dip of 5.08% due to the decline in equipment sales, roaming & prepaid mobile, which is mitigated by the growth in the ICT segment. Despite the revenue contraction, profit after tax was up 57% due to the reduced exceptional Bharti Airtel regulatory costs and Job Support Scheme (“JSS”) credits.

Free Cash Flow for Singtel

Since FY2018 till FY2020, Singtel has been rather consistent in generating free cash flow from its business operations. For FY2018, its free cash flow stands S$3.24 billion and has risen to a high of S$3.47 billion in FY2020.

Bid for DFB License

In the bid for the digital bank license, Singtel has formed a joint venture with Grab and the latter will hold 40% of the joint venture while the remaining 60% will be owned by Grab. Some analysts have highlighted that Singtel will have to commit more than S$600 million into this venture over the next few years.

With a relatively strong and healthy free cash flow for Singtel, the commitment to the joint venture should not have an adverse impact on its current level of free cash flow.

iFAST Corporation Limited (SGX: AIY)

iFAST Corporation Limited (“iFAST”) is a wealth management Fintech platform, with assets under administration (“AUA”) of S$12.6 billion as of 30 September 2020.

Incorporated in the year 2000 in Singapore and listed on the SGX-Mainboard in December 2014, iFAST is also present in Hong Kong, Malaysia, China and India.

The Group has built a well-established Fintech ecosystem connecting its product providers and clients. iFAST holds the requisite licenses in the various jurisdictions it operates in to provide a wide range of products and services.

Revenue for iFAST

For iFAST’s trailing 12-month performance, its revenue came in at S$155.8 million, and has risen by 24.3% due to the increase in Asset Under Administration and higher revenue growth from both businesses to consumer and business to business segment. On the other hand, its profit after tax surged by 84.3% as a result of stronger revenue growth and lower operating expenses.

Free Cash Flow for iFAST

IFAST’s free cash flow has been growing consistently for the past 3 financial years. For FY2017, its free cash flow stands at S$11.75 million and has since increased to S$17.05 million in FY2019.

Bid for DWB License

iFAST has partnered with China-based companies Yillion Group and Hande Group for the bid of a digital banking license. IFAST will hold a 65% stake in this joint venture while the remaining will be held by Yillion Group and Hande Group.

Yillion operates one of the four digital banks in China and has Hong Kong-listed Meituan Dianping - the third-largest Chinese Internet firm based on market capitalisation - as a key shareholder while Hande Group is a fintech firm founded by Dr Cao Tong, former president of Webank, China's first digital bank.

Given iFAST’s strong free cash flow and the vast experience from their partners in this bid, iFAST is a good candidate for the digital banking license.

Singapura Finance Limited (SGX: S23)

Singapura Finance Limited is engaged in the finance business. The Company offers personal banking, including savings and fixed deposits, which include savings for juniors, savings for adults, savings for seniors and fixed deposits. The Company's personal deposits include Junior Savers, Adult Savers, Gold Savers, Fixed Deposits and Safe Deposit Box. The Company also offers personal loans, such as mortgage loan, car loan, pleasure craft financing, gold share loan and WISE Share Loan.

The Company's business banking includes commercial and industrial property financing; equipment and machinery financing; inventory financing; property development financing; commercial vehicle financing; vessel financing, and block discounting. The Company also offers other loans, which include property loans, hire purchase equipment loans and vessel loans.

Revenue for Singapura Finance

For Singapura Finance trailing 12-month performance, its revenue came in at S$31.1 million which was 2.7% higher due to a higher interest income and other operating income while being partially offset by higher interest expenses. However, due to a net charge for loan impairment losses and a higher allowance for non-impaired loans, its profit after tax has suffered a drop of 48.8%.

Free Cash Flow for Singapura Finance

Singapura Finance has registered a negative free cash flow in FY2018 due to a negative change in its working capital. Despite that, its free cash flow has achieved a positive figure of S$74.4 million in FY2019.

Bid for DFB License

In March 2020, MatchMove has submitted a bid for the DFB License. The DFB License will come with a hefty S$1.5 billion capital requirement. In order to meet the requirement, MatchMove mentioned that it would lead a consortium consisting of three other equity partners in the financial industry, mainly - Singapura Finance, UK fintech OpenPayd and Thailand's CP Group-linked Lightnet.

With MatchMove roping in more partners for this Bid, this will allow MatchMove and Singapura Finance to stand a chance to clinch the digital bank license.

Conclusion

On top of these few contenders, there are many others such as SEA Limited and a consortium led by V3 Group and Heliconia Capital Management who are applying for the DFB license. For the DWB license, the joint venture between ShengYe Capital, Phillip Capital and Advance AI and the consortium which consist of AMTD, Xiaomi, SP Group and Funding Societies are also eyeing for a DWB license as well.

As we step into December, let’s keep abreast with the announcements from MAS on the award of 2 digital full bank licenses and 3 digital wholesales bank licenses.

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