“For 2024, we expect ROAs to see [a] -0.07 percentage point to 0.02 percentage point contraction/expansion from 2023, with 2026 average ROA to be 4 basis points (bps) lower than 2024 levels and remain above 2019 (pre-Covid levels), ex Thailand banks (given large investment gains in 2019),” they say. This comes as net interest margins (NIMs) begin to decline as the world enters into a rate cut cycle. Singapore banks are expected to tip first as the Fed cuts are anticipated to begin in March 2024. This is then followed by Indonesian banks with rate cuts expected in the 2Q2024. Banks in the Philippines are likely to begin cutting rates in the 4Q2024 while Thai banks are the last with cuts to start in the 4Q2025.
Goldman Sachs analysts Melissa Kuang and Olivia Shi foresee that 2024 will mark an inflection downwards for most Asean banks after their profitability peaked in 2023. This is likely due to a rate cut cycle happening as early as 1Q2024, according to Goldman’s economists. “We forecast Asean banks to enter a downward trend at differing paces, depending on the pace of policy rate cut in each region based on our economists’ forecasts,” they write.
However, instead of a tumble in the banks’ return on assets (ROAs), the analysts expect to see a gentle easing amid an anticipated rebound in Asean’s GDP. The expected GDP growth is supported by recovery in global trade, an easing in monetary policy and Thailand’s implementation of pro-growth fiscal policies and ongoing recovery in its tourism sector. Indonesia’s higher pre-election spending offsetting the drag from lower coal export prices is also another contributor to the region’s growth.
