Hong Kong Monetary Authority Reviews Virtual Banks, Proposes Renaming to ‘Digital Banks’

The
Hong
Kong
Monetary
Authority
(HKMA)
has
released
a
comprehensive
report
evaluating
the
performance
and
impact
of
virtual
banks
(VBs)
in
the
region.
This
review,
conducted
in
2024,
comes
several
years
after
the
inception
of
the
first
eight
virtual
banks
in
2020,
according
to
the

HKMA.

Key
Objectives
of
the
Review

The
HKMA’s
report
aimed
to
achieve
four
main
objectives:

• Assess
  the
  delivery
  of
  the
  three
  policy
  objectives
  for
  introducing
  virtual
  banks
  to
  Hong
  Kong.
• Evaluate
  market
  acceptance,
  business
  performance,
  and
  user
  response
  since
  the
  launch
  of
  VBs.
• Discuss
  challenges
  faced
  by
  VBs
  and
  outline
  HKMA’s
  policy
  initiatives
  to
  support
  their
  growth.
• Recommend
  steps
  for
  further
  development
  of
  the
  virtual
  banking
  industry.

Findings
and
Performance
Metrics

The
review
found
that
virtual
banks
have
successfully
achieved
the
three
policy
objectives
set
out
at
their
introduction.
Market
acceptance
has
been
strong,
with
2.2
million
depositors
using
VB
services
as
of
the
end
of
2023.
These
digital-only
banks
have
received
positive
feedback
for
their
innovative
products
and
services.

Despite
facing
initial
challenges
due
to
the
COVID-19
pandemic,
the
eight
virtual
banks
have
shown
moderate
business
growth
over
the
past
three
years.
While
none
of
the
VBs
had
reached
profitability
by
the
end
of
2023,
their
operating
performance
has
improved
significantly.
Aggregate
operating
income
increased
seven-fold,
and
net
losses
narrowed
by
15%
from
FY2021
to
FY2023.

Future
Outlook
and
Proposed
Renaming

HKMA
Chief
Executive
Eddie
Yue
stated
that
the
current
number
of
virtual
banking
licenses
is
optimal,
indicating
no
immediate
plans
to
introduce
more
players
into
the
market.
In
a
bid
to
better
reflect
the
modern
banking
model,
the
HKMA
has
also
initiated
a
one-month
public
consultation
to
consider
renaming
“Virtual
Bank”
to
“Digital
Bank”.

The
consultation
paper
and
the
detailed
report
can
be
accessed
and
downloaded
from
the
HKMA
website.

Image
source:
Shutterstock