Virtual bank race tightens — BOT warns licence at risk

Thailand’s plan to launch virtual banks has reached a critical stage, with the Bank of Thailand warning that applicants who fail to meet required criteria must explain why and could ultimately lose their licence.

Three applicants are currently in the approval process after passing the central bank’s initial screening. They are ACM Holding Co Ltd, involving Charoen Pokphand Group; Krung Thai Bank in partnership with Advanced Info Service (AIS) and PTT Oil and Retail Business (OR); and SCBX, in partnership with KakaoBank and WeBank.

Each applicant is working under a clear timeline to prepare its systems, organisational structure and qualifications in line with regulatory requirements before being allowed to begin operations.

Bank of Thailand governor Vitai Ratanakorn said the three applicants must complete their own preparations and adjust their business qualifications and conditions to meet the central bank’s criteria before they can officially open for business.

Before filing formal applications, all applicants certified to the Bank of Thailand that they would comply strictly with all criteria and conditions. If any applicant later finds it cannot meet any agreed condition, it must provide clear and sufficient reasons. The central bank will then consider the facts on a case-by-case basis.

Vitai said applicants could adjust in several ways to meet the rules, such as reducing shareholdings in affiliated businesses that conflict with ownership criteria, or surrendering non-core financial licences that may create conflicts of interest.

He said the Bank of Thailand would review such explanations and consult the Finance Ministry, which has the final authority to decide on virtual bank licences.

The central bank has found that the shortlisted applicants have different business structures. Some operate through Counter Service and focus mainly on payments, while others are large retail and wholesale businesses with complex structures and smaller subsidiaries.

Vitai said these details would be carefully assessed to ensure fair treatment according to each applicant’s actual business context. In principle, applicants should meet all criteria, but if they fail to meet some requirements, they must provide clear reasons.

Once the Bank of Thailand completes its review, it will submit its recommendation to the Finance Ministry. The finance minister will make the final decision on whether to grant a licence.

If any applicant cannot meet the conditions or qualifications it previously certified, it will not be allowed to operate a virtual bank. The Bank of Thailand has no policy to bring back reserve applicants from the first round as replacements.

As a result, the market could end up with only two virtual bank operators if one applicant is disqualified or withdraws.

After receiving in-principle approval, successful applicants will have about one year to prepare their systems before launching services.

The Bank of Thailand said system security and financial stability would be its top priorities to ensure that virtual banks in Thailand launch smoothly and benefit the economy.

Virtual bank business rules

The licensing process follows the Finance Ministry’s announcement on the criteria, procedures and conditions for applying for and issuing virtual bank licences, published on February 20, 2024.

Under the rules, applicants must ensure that financial businesses they control are placed within the same business group as the virtual bank and separated from non-financial businesses.

The aim is to allow effective supervision of financial risks and prevent virtual banks from improperly benefiting affiliated businesses, either inside or outside the financial sector.

Examples include lending beyond permitted limits or offering special pricing or conditions that differ from normal transactions.

Applicants may comply with the rules in several ways. They may transfer only financial businesses into the same group as the virtual bank, reduce shareholdings in financial businesses to remove control, return insignificant financial business licences, take other steps consistent with the Finance Ministry’s objectives, or apply without restructuring while providing reasons for consideration.

All virtual bank applicants must submit supporting documents to the Bank of Thailand and the Finance Ministry for joint consideration before licences are granted.