Economic recovery is in the air and so is the appetite of regional banks to expand. Experts said Asia, with its brighter economic prospects, may see the bulk of mergers and acquisitions (M&A) activity.
Kenneth Ng, head of CIMB-GK Research, said: "The best market in Asean, we think, would be Indonesia. Indonesia has seen loan growth growing at a decent pace and margins are the highest among the countries in the region. And certainly, there seems to be a turnaround in the political environment and the economy."
CIMB said Indonesia's fragmented banking market presents targets for M&A.
As for Vietnam, observers said its huge unbanked population will give new players a chance to build customer bases and economies of scale.
Experts said M&A activities in the region will likely be driven by government policies to promote efficiency and competition.
Michael Araneta, analyst, IDC, said: "The markets across the region are expecting several financial sector masterplans to be launched in the near term. These masterplans are expected to open up the domestic markets to new and foreign competition."
Another driver is the retreat of some foreign players to concentrate on their core and home markets. In the past year, for example, the Dutch financial services giant ING sold its Asian private banking business to Singapore-based OCBC.
Asian banks have emerged relatively stronger from the crisis, but their growing dominance has raised some concerns of monopolies and potential systemic risks.
"This brings into question a lot of the too-big-to-fail issues as well. A lesson we learnt out of the crisis in that the bigger the organisation is, a higher chance the government will step in if the institution fails. This creates a lot of risk-taking in the institution, which is not really good," said Araneta.
Market watchers said regulators will need to pay attention to ensure that M&A activities do not result in less competition. They said this will be especially important in business segments such as mortgages.
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