This article first appeared in The Edge Malaysia Weekly on June 21, 2021 - June 27, 2021

NATIONAL oil company Petroliam Nasional Bhd (Petronas) has refuted market speculation that it plans to apply for a digital banking licence, saying that its current digital transformation ambitions do not include digital banking.

“Petronas is pursuing an ongoing aggressive digital transformation agenda to create and unlock new value across its entire business chain with the ultimate aim of becoming a data-driven organisation. [Our] current digital transformation ambitions do not include digital banking,” it told The Edge in an email response last Friday.

Bloomberg had, a day earlier, reported that Petronas was among several big companies that were planning to bid for a digital banking licence in Malaysia. Citing people familiar with the matter, it said Petronas was looking to focus on digital Islamic banking with a financial institution partner.

Bank Negara Malaysia, which aims to open up the banking market to non-traditional players, plans to issue up to five digital banking licences. It has set June 30 as the deadline to receive applications from those interested in Islamic or conventional digital banking.

The Edge understands from sources that Petronas, through its 63.9%-owned subsidiary Petronas Dagangan Bhd, which owns the popular mobile app Setel, had considered applying for one of the licences but then later decided against it.

“I think they couldn’t find a good joint venture partner and the board was not convinced [of the plan],” a source tells The Edge.

Setel is the country’s first e-payment solution that enables fuel purchases directly from mobile devices. It also features an e-wallet that allows users to purchase items from Petronas’ Mesra stores nationwide.

Petronas Dagangan said two months ago that it wanted to focus on its non-fuel segment to buffer uncertainties in the oil and gas sector and venture into e-commerce platforms to boost revenue.

It swung back to profitability in the first quarter ended March 31, 2021, registering a net profit of RM191.11 million compared with a net loss of RM29.42 million in the same quarter a year ago.

As for Petronas, its first-quarter net profit more than doubled to RM9.3 billion, thanks to an impairment write-back, while revenue fell 11.8% to RM52.55 billion.

As the June 30 deadline looms, there has been much speculation in the market as to which companies may apply for a digital banking licence. Companies are likely to form consortiums to apply, as was the case in Singapore and Hong Kong.

With only up to five licences up for grabs, it will be a beauty parade, with applicants having to convince Bank Negara of their business plan and ability to cater for the underserved and unserved segments. The central bank has made it clear that it wants digital banks to focus on those segments, thereby improving financial inclusion in the country.

Bank Negara is expected to announce the winners by the first quarter of 2022. Singapore had in December last year granted digital banking licences to four out of 21 applicants, while Hong Kong issued eight such licences in May 2019.

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