IT has been challenging for Asean banks to adapt their operations and maintain banking profits during the pandemic. Southeast Asian banks are also worried that further movement restrictions may affect banking profits.
Nevertheless, Southeast Asian banks can seize the opportunities from the rising demand in banking and financial services. This increase is primarily due to the increasing wealth of Southeast Asia’s rising middle class as well as the digital adoption during the pandemic.
Banks are of paramount importance in the economy in helping firms, especially SME (small and medium enterprises), to make a business recovery amidst the pandemic.
According to Ernst & Young, SME contribute approximately 60% of Asean countries’ GDP (gross domestic product).
Banks can use real-time data of a SME client such as finances, as well as market conditions and trends to predict when their client may encounter a cashflow problem in the future. This will allow banks to supply additional capital in advance.
In March, the Asean Central Bank Governors and Financial Institutions CEO (chief executive officers) Dialogue facilitated discussion on how Southeast Asian financial institutions can ensure financial integration, adjust banking operations accordingly during the digital age, and help create a more sustainable environment.
Irrefutably, digitalisation and sustainability initiatives are top of the agenda for Southeast Asian banks, and will be the key drivers of banking profits in the next few decades.
Maybank Singapore’s head of equity research believes that digitalisation will be a major driver of revenue for Southeast Asian banks.
Banks can leverage on technology and data analytics to provide digital banking services and products, and to revolutionise the online customer experience.
In February, Indonesia’s Bank Jago collaborated with Gojek to become the first fully-digital bank in Indonesia. Bank Jago customers can open a bank account using Gojek’s mobile application, which is highly convenient and accessible for mobile phone users.
There is huge potential in digital banking in Indonesia with approximately one-third of Indonesia’s 276 million population without bank accounts currently.
Other than Indonesia and Singapore, the Philippines and Thailand are among the Asean countries making huge strides in developing digital payments infrastructure.
The Philippines Central Bank endorsed the Digital Payments Transformation Roadmap in 2020, to turn the Philippines into a cash-lite economy by 2023.
Bangko Sentral ng Pilipinas hopes to convert half of all retail payments into digital payments, enhance financial inclusiveness in the country, and to spur the invention of innovative digital banking products and services.
In April, the central banks of Singapore and Thailand linked both Singapore’s PayNow and Thailand’s PromptPay payment infrastructure. This facilitated monetary transfers between the two countries, which would decrease costs and transaction times. Eventually, both central banks hope to extend this initiative across all Southeast Asian nations.
There is huge promise in Southeast Asia’s digital payments sector, with approximately 290 million underbanked and unbanked citizens in Asean currently.
Undeniably, having digital payments will allow Southeast Asian citizens living in rural areas in particular, to have greater access to financial products and services for their daily living expenses and other purposes. This will help greatly in reducing inequalities in Asean countries.
Asean’s digital economy is poised to reach US$300 billion (RM1.25 trillion) by 2025, according to a Bain & Company report in 2020.
Other than digital payments, Southeast Asian nations have started to explore blockchain technology.
Blockchain Australia and five Southeast Asia blockchain organisations formed the Asean Blockchain Consortium in April, to help advance blockchain technology and facilitate the sharing of knowledge.
In October 2020, the Cambodia Central Bank established Bakong, a blockchain payments system, to allow Cambodian citizens to conduct mobile payments over a blockchain.
Asean governments and banks have also been prioritising sustainability initiatives recently. In March, Southeast Asian countries agreed to set up the Asean Taxonomy of Sustainable Finance, to promote sustainable business activities and financing, which will meet the Paris Agreement goals.
Southeast Asian banks play a vital role in combating climate change and environmental degradation by financing green and renewable infrastructure projects, providing green loans and bonds.
The green financing market in Southeast Asia is predicted to reach US$40 billion by 2030.
AMRO group head recently mentioned that Southeast Asian banks have learnt from the Asian financial crisis, and are equipped with large volumes of high-quality capital to hedge against the uncertainty caused by the Covid-19 pandemic.
Nevertheless, Asean countries have rolled out vaccination drives in the hope of achieving herd immunity and normality, where movement restrictions will be reduced and more businesses can be opened. This will significantly help in achieving economic recovery in Southeast Asia, which would be good news for banks.
DBS bank predicts that Southeast Asia nations will enjoy a GDP growth rate of 5.2% this year, with Asean banks playing a critical role in countries achieving it.
Ong Bo Yang is a double Masters student, majoring in Master of Science in Programme and Project Management at University of Warwick, and Master of Business Administration at Quantic School of Business and Technology. He has written Op-Eds for 10 Asean newspapers. Comments: letters@thesundaily.com
