SINGAPORE -- Southeast Asian banks enjoyed a banner 2018 as greater lending and healthy asset management operations drove double-digit profit gains at seven of the region's 10 leaders by market cap.
With economic growth averaging 4.8% across five leading Southeast Asian markets including Thailand and Malaysia, demand for capital increased as average incomes rose and businesses expanded. Deposit and loan operations grew, helping lift bank profits across the board. The rapid growth also prompted lenders to focus on financial technology to serve consumer hunger for mobile payments.
Growth appears robust, despite concerns that factors like the U.S.-China trade war could sap economic vigor.
Singapore's DBS Group Holdings led the pack in both absolute net profit and growth, staging a 28.1% rise to 5.63 billion Singapore dollars ($4.14 billion). Its compatriot Oversea-Chinese Banking saw profit climb 11.1% to SG$4.49 billion, while United Overseas Bank secured an 18.2% rise to SG$4.01 billion.
State-owned Bank Rakyat Indonesia compiled 11.6% growth to about 32.35 trillion rupiah ($2.29 billion), while fellow Indonesian lender Bank Central Asia notched a 10.9% increase to 25.9 trillion rupiah. Bank Mandiri's earnings after tax rose 21.2% to 25 trillion rupiah.
Thailand's Kasikornbank rounded out the list of double-digit growers with a 12% rise to 38.5 billion baht ($1.21 billion).
Banks recorded particularly strong lending growth in Indonesia, whose market of over 250 million people accounts for about 40% of the Southeast Asian economy in gross domestic product terms.
Bank Central Asia achieved a roughly 20% increase in the balance of its loans to large businesses, as well as a rise of about 13% toward smaller enterprises and a 12% jump in mortgages. Bank Rakyat Indonesia likewise saw double-digit growth in lending to individuals and small businesses. Both banks enjoyed net interest margins in the 6% to 7% range, with nonperforming loans making up just 1% to 3% of the total.
For Malaysia's Malayan Banking, also known as Maybank, the balance of domestic mortgages rose by about 8%, while lending to small businesses climbed by around 15%.
Bank loans and credit cards are still new territory for many Malaysians and Indonesians, giving banks fertile ground to make inroads and increase lending and profit. Maybank's net profit grew 7.9% to 8.11 billion ringgit ($1.98 billion), while compatriot Public Bank logged a 2.2% rise to 5.59 billion ringgit.
Meanwhile, Singapore's major banks lifted profit by diversifying their business and geographic portfolios. For DBS, net interest income rose about 26% in asset management and other operations geared toward wealthy people. Profits got a boost as funds flowed in from throughout the region, with many rich Asians moving their wealth to the city-state and buying real estate.
Oversea-Chinese Banking earned 46% of its pretax income outside Singapore, with a particular focus on the Greater China region including Hong Kong and Macau. Hong Kong operations contributed heavily to the overall growth in income and profit.
The Singaporean lenders are combing Southeast Asia for new markets to build into income streams, and all are focusing on creating services for individual customers, mainly in mobile transactions. United Overseas Bank said in February it will launch a mobile-oriented digital bank in Thailand.
Technology advances rapidly in fintech services, and banks need to invest hefty sums to compete with scrappy startups in the field. Heavy investments in digital sank Thailand's Siam Commercial Bank Public to the only year-on-year net profit drop among the 10 regional heavyweights. Regulatory differences among Southeast Asian nations make it impossible to simply replicate services in one country for another.
Banks may look to hone their risk management capacity along with their growth strategies, in case factors like the Chinese economic slump weaken Southeast Asia and cause the rapidly proliferating loans to turn into bad debt.