BSP on guard as digital banks face profit strain
Nearly five years after the Bangko Sentral ng Pilipinas (BSP) opened the digital banking industry, many incumbents are still struggling to turn a profit, with the regulator staying vigilant against excessive risk-taking in a sector marked by fierce competition for deposits and lending opportunities.
Only “a few” of the six licensed players have reported net income so far, the central bank said, adding that profitability “remains a challenge” across the digital banking sector.
Still, the central bank said early losses largely reflect a growth and transformation phase rather than structural weakness.
Similar patterns have emerged in other markets, where digital banks typically shoulder heavy upfront spending on technology, infrastructure and customer acquisition before reaching stable profitability.
“Digital banks continue to post strong asset growth and rising transaction volumes, reflecting the broader shift toward digital financial services, driven by rising customer adoption, steady deposit inflows, and wider use of digital channels,” the BSP said in an emailed response to questions from the Inquirer.
In 2021, the central bank imposed a three-year moratorium on applications for digital banking licenses to give regulators time to assess the performance of this new breed of lenders and their impact on the financial system.
The BSP accepted new applications last year and is now reviewing three fresh bids, in a move aimed at expanding a young industry that includes UNO Digital Bank, UnionDigital Bank, GoTyme Bank, Tonik Digital Bank, Maya Bank and Overseas Filipino (OF) Bank, a subsidiary of Land Bank of the Philippines.
So far, only Maya Bank and OF Bank have publicly disclosed that they have reached profitability.
Long-term benefits
The BSP said that while the entry of new players may put short-term pressure on the margins of the incumbents, the heightened competition could deliver long-term benefits to the industry and their customers.
“Competition encourages product innovation, efficiency and wider access to financial services,” the BSP said. “Not all players will grow at the same pace, and sustainability will depend on execution and discipline, not just rapid expansion.”
Data from the BSP showed deposits in digital banks climbed to P138.5 billion by the end of 2025, up nearly 44 percent from a year earlier. Those funds were spread across 33.9 million accounts, a 75-percent increase from the previous year.
The industry’s customer base expanded just as quickly. Digital banks—many offering high deposit rates to attract funds—counted 22.4 million depositors as of last year, an 81-percent jump from 2024.
On the lending side, digital banks’ loan portfolio reached P71.5 billion as of January 2026, up nearly 73 percent from a year earlier.
But because the sector largely targets higher-yield, riskier consumer borrowers long underserved by traditional banks, the industry’s nonperforming loan ratio stood at 6.16 percent in January—well above the 3.31 percent recorded for the entire Philippine banking system.
Fitch Ratings earlier said competition for funding in the local banking scene is expected to heat up with the entry of new digital banks, which are expected to “aggressively” raise deposits to jump-start their operations.
Looking ahead, the BSP said it would continue to follow a risk-based supervisory approach to prevent excessive risk-taking within the hyper-competitive industry.
“When aggressive growth or higher-risk practices are observed, the BSP engages early with the bank’s management to ensure prompt supervisory intervention,” the central bank said.
“Growth is expected to align with the institution’s risk management capability and capital strength. The BSP also continues to refine supervisory frameworks and strengthen its capabilities to adapt to evolving risks across the financial system,” it added.
