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Rising bad debt, capital requirements may prompt Southeast Asian bank stake sales


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According to Market Intelligence, April 2023

Rising bad debt, capital requirements may prompt Southeast Asian bank stake sales

Rising bad debts and more stringent capital regulations maypush banks in Southeast Asia to seek foreign capital through stakes sales tooverseas investors.

For banks in Vietnam, the need to raise capital is driven byhigher capital requirements under Basel II, as well as ongoing efforts to clean upbad loans, SanjayKalra, a senior economist and deputy division chief at the IMF, said at TheAsian Banker Summit 2016 in Hanoi.

Kalra noted that these issues are not exclusive to banks inVietnam, and other banks in Southeast Asia may face a similar situation.

"Not only banks in Vietnam, but Indonesia and Thailandwill look at raising capital and the preference would be private sources,"Kalra said during a panel discussion.

Capital raisings in Southeast Asia may also rise on the backof multinational banks exiting some areas of transaction finance, as smallerbanks in the region that are keen to fill the void would need to raise funds toexpand their service offerings, said Tod Burwell, president and CEO of theBankers Association for Finance and Trade.

Burwell said multinational banks are pulling out oftransaction finance as know-your-customer, or KYC, norms are making servicingsmaller players too costly.

"There is a shift in roles in the global bankingecosystem, with large banks more selective because of KYC rules and policies ofderisking, which have led to dropping many small and medium clients," headded.

Many smaller firms that export to major markets rely on theextensive networks of multinational banks to move funds and for trade finance,Burwell said, but that business is shrinking because of risk and KYC concerns.

"Small and medium enterprises have been identified as apath to get illicit funds into the global financial system," he added.

Burwell noted that this leaves a new opportunity forregional banks to grow transaction services and handle the KYC aspects,including dealing with correspondent banks regarding KYC norms when movingfunds abroad.

"This is a great opportunity for local banks," hesaid, adding, however, that they will face new competition from fintechcompanies looking at the same space.