Thailand Warns Virtual Banks About ‘Irresponsible Lending’ as It Approves Them

Thailand has approved virtual banking, while warning against “irresponsible lending.”

The country’s central bank on Thursday (Jan. 12) said it expects financial institutions to operate in a sustainable fashion to ensure innovation.

“Virtual banks should not initiate a race to the bottom through irresponsible lending, give preferential treatment to related parties, nor abuse dominant market position which will pose risks to financial stability, depositors, and consumers as a whole,” the Bank of Thailand (BOT) said in a news release.

To that end, the bank has set up requirements for virtual banks. They need to have business models to show they can provide full-service banking, and have a background in technology, digital services, and data.

These banks will also comply with the same regulations as traditional banks, and will go through a “restricted phase” during their first years of operation, BOT said.

In a press briefing Thursday, the bank said it plans to issue three licenses next year before banks begin operating in 2025, Bloomberg News reported. So far, 10 applicants have expressed interest, said Tharith Panpiemras, the BOT’s assistant governor.

“Higher competition will strengthen the overall banking system by prompting existing players to

improve their services and innovations,” Tharith said during the briefing. “New virtual banks will also expand their services into new underserved customers with lower costs that would benefit the overall customers.”

Recent research by PYMNTS shows that the rapid rise of digital banking in the past few years has offered new paths to a small but growing group of people seeking alternatives to traditional banking and investing.

This research showed that consumers whose primary banks are digital-only represent just 9% of banking customers, versus the 21% who identify as primary traditional bankers, or customers who do not use FinTech banking services at all.

The study divided these consumers into two categories. “Primary FinTech bankers” are nearly 20 years younger than primary traditional bankers, with average incomes $6,000 higher. Then there are higher income “Auxiliary FinTech bankers” who favor traditional financial institutions but also use digital banks to access mobile banking and other tools.