The shine is coming off southeast Asia – the golden child of banking after the global financial crisis – as valuations tumble and competition for funding heats up across the region.
The battle for funding is only going to get tougher once the U.S. Federal Reserve begins in earnest to taper its massive supply of cheap US dollars to the world's financial markets. Amid slowing regional economies, debt-fueled high asset prices and wild currency swings, banks are battening down the hatches for a rough ride.
CIMB, Malaysia's largest bank by assets, has launched a $1.1 billion capital raising to defend against the decline in profits coming from Indonesia, according to analysts, where it has a big presence through its ownership of Bank Niaga and where the local currency has tumbled.
Others are looking to buy their way to better funding prospects and into China's stronger economic growth. OCBC, Singapore's second-largest bank by assets, is in talks to spend about $5 billion on Hong Kong's Wing Hang Bank, which has a loyal local deposit base and access to the growing off-shore renminbi market. A deal would also double OCBC's China branches to about 30.
"If you take the top tier out of each market – HSBC, Standard Chartered and maybe DBS – then everyone else is pushing up against deposit ceilings and that is going to be the big constraint this year," said one analyst who declined to be named.
OCBC is also spending $550 million to lift its stake in Chinese provincial lender Bank of Ningbo from just over 15 per cent to 20 per cent. That might seem counter-intuitive given the expected problems with bad debts in China following the lending binge that helped the country weather the 2008 global financial crisis, but hitching a ride on the country's economic growth is a key strategic focus of OCBC.
Many analysts are warning that banks in emerging Asia, in the year ahead, will be forced to cut the leverage in their balance sheets as loan-to-deposit ratios approach peak levels, which means greater costs, lower revenues, or both.
(Read more: Are China bank stocks cheap or just crummy?)
The problem across the region is that as consumers have borrowed and spent more, seduced by low interest rates and recent years of good growth, many Asian economies have seen their current account surpluses shrink or go into reverse.
For banks this means declining deposit growth even as demand for loans remains elevated, according to Morgan Stanley analysts, resulting in higher costs and a battle for funding.
Loans have been growing faster than deposits in many markets for the past few years. Singapore has seen one of the most dramatic spikes with loan-to-deposit ratios jumping from about 70 per cent in 2010 to 105 per cent now – second only to Thailand in the region.
(Read more: China's bad-loan skeletons to haunt markets)
Yet Kevin Kwek at Bernstein Research reckoned this is less of a problem for Singapore than elsewhere in southeast Asia because the city-state's open and financially focused economy means continued access to bank and bond funding in global markets if not at home.
"In a country such as Indonesia, more of the economic growth will have to be funded from within the local system deposits," he said. "In Singapore, which has very open and international markets, any company can go to capital markets or global banks."