Why Singapore banks' regionalisation push could fail this year

Analyst predicts near-term drag.

According to DBS, Singapore banks, earning the lowest NIM in ASEAN, need to regionalise to keep their ROEs afloat.

While this theme may have downside risk especially in markets such as Indonesia and Thailand (UOB has exposure in these two markets; OCBC only has exposure in Indonesia), it remains on the agenda of the banks over the longer-run. But, the regionalisation push may disappoint this year, says DBS.

Here's more:

Both UOB and OCBC however derive close to 20% of profits from their Malaysian operations, which to date has remained resilient. We would be cautious should there be further significant tightening on consumer debt in Malaysia to rein in on household debt accumulation.

We believe that once these emerging ASEAN markets start to recover from the current macro weakness, the Singapore banks’ regionalisation journey should be back on track.