Tonik Financial, the parent company of the Philippines-based digital lender Tonik Digital Bank, reported reduced year-on-year losses in 2023, though customer deposits decreased during the same period, according to regulatory filings.
In its annual return filed with Singapore’s Accounting and Corporate Regulatory Authority (ACRA), Tonik Financial stated that its interest income more than tripled to US$19.8 million in the financial year ending December 31, 2023, from US$6.2 million the previous year.
The company also reduced its total comprehensive loss for the year to US$29.3 million from US$37.6 million in 2022. Despite the growth in interest income, Tonik Financial experienced a roughly 3% decline in customer deposits to US$142.4 million, following a significant 38% annual increase to US$147 million in 2022.
CEO and founder Greg Krasnov told DealStreetAsia that the firm does not need to expand its deposit portfolio and expects it to remain stable this year as the loan portfolio catches up with deposits.
“Our deposits serve as a raw material provider to our lending business,”
Krasnov explained.
“Following our initial tremendous success in the first year after launch in securing deposits, we were significantly in excess of our original business plan. We have not needed to grow our deposit portfolio.”
Singapore-based Tonik Financial had four subsidiaries operational by the end of 2023. The largest, Tonik Digital Bank, is fully incorporated and operational in the Philippines.
Other subsidiaries include Tonik Financial India, the group’s IT service provider; Purple Hub, an advertising agency based in the Philippines; and Templetech Finance Corp, a financing company also in the Philippines. Tonik Digital Bank received its digital banking licence from the Bangko Sentral ng Pilipinas (BSP) in 2021.
Tonik Financial’s higher interest income last year was attributed to the expansion of its consumer loans from US$1.8 million to US$8.8 million. However, the digital bank’s gross non-performing loans (NPL) ratio increased in the first quarter of this year.
While the latest financial statements did not disclose the percentile financial indicators, including the gross NPL ratio, Tonik Digital Bank’s filing with the Philippine central bank indicated that its gross NPL ratio rose to 7.24% in the first three months of 2024, up from 3.95% in the previous quarter.
Greg noted that the NPL ratio, as per the BSP balance sheet, is not a very accurate indicator of credit quality, as it “is highly dependent on the speed of loan portfolio growth and does not reflect any potential collection recoveries nor future delinquencies on the existing portfolio.”
Bad loans held by digital banks in the Philippines have continued to rise, even as these banks have outperformed traditional peers in attracting deposits. According to BSP data, digital banks’ NPL borrowings accounted for 21.64% of the sector’s total loan book in February, higher than the 20.95% ratio in January.
The data also showed that these lenders had set aside approximately US$47 million as an allowance for credit losses in February, up 16.17% from a month earlier.
Besides the deposits and loan data, the Tonik financial statement further revealed that staff costs, including wages, salaries, and other benefits, grew 22% last year to around US$17 million from US$13.9 million a year earlier.
In March 2024, Greg mentioned that the company had retrenched a few fixed positions that were not essential to supporting the company’s objectives. Conversely, operating expenses, which covered IT, travel, taxes and licenses, consultation fees, and marketing, declined to US$17.8 million in 2023 from US$18.3 million the previous year.
Additionally, balances with the central bank, known as bank reserves, dropped 10% to US$147.5 million from US$164.5 million in 2022, while placements with banks and other financial institutions declined 45% year on year to US$32.3 million.
“In terms of profitability, what we said at the start of 2023 is that we are on an 18-24-month timeline to cash flow breakeven. We are still on this timeline,”
Greg said.
In 2022, Tonik raised approximately US$131 million in a Series B round led by Japanese banking major Mizuho Bank. In 2021, it raised US$17 million in pre-Series B funding anchored by Singapore venture capital firm iGlobe Partners, and secured US$21 million in Series A funding in 2020.
In January 2024, Tonik Digital Bank’s president Long Pineda retired from her executive role, and assumed the position of non-executive chairman of its board of directors, with Greg taking over her position.
Tonik is one of six digital banks that have received licences in the Philippines. The first bank to obtain the licence was Overseas Filipino Bank, a subsidiary of the state-owned Land Bank of the Philippines.
The others with digital banking licences are UnionDigital Bank, Uno Digital Bank, GoTyme Bank, and Maya Bank. BSP Director Melchor Plabasan stated earlier in March that only two digital banks in the country are profitable, but he emphasised that it typically takes five to seven years for a digital bank to become profitable. He declined to name the two profitable digital banks.
