Hong Kong rules out more virtual banks, citing need for ‘healthy development’ of sector

The Hong Kong Monetary Authority (HKMA) has ruled out issuing new virtual bank licences after a review found that the eight players currently operating were adequate and that it may stunt the sector’s development.

“Looking ahead, with the diversity of virtual banks and incumbent banks, the HKMA considers that the current number of virtual banking licences is optimal and does not see any strong justification to introduce more new virtual bank players to the market at this juncture,” Eddie Yue Wai-man, CEO of the HKMA, said in a statement on Tuesday.

The decision came after the HKMA earlier this year launched a review into the development of virtual banks, which have yet to turn a profit.

“The already keen competition in the retail banking sector will be further intensified if more new market participants are introduced,” the HKMA said in its review. “Moreover, with virtual banks yet to achieve profitability, introducing new players to the market is unlikely to be conducive to a healthy development of the sector.”

The de facto central bank, however, has proposed changing the names of these virtual banks to “digital banks” to reflect their business operations.

The HKMA issued eight virtual bank licences in 2019 to inject innovation and competition into the industry. The following year ZA Bank, WeLab Bank, Mox Bank, Ant Bank, Livi Bank, Ping An OneConnect Bank, Airstar Bank and Fusion Bank started operations. They are not allowed to have any physical branches and can only offer banking services online.