BANKS in Southeast Asia may come out of the current crisis brought on by the Covid-19 pandemic relatively better than their peers elsewhere in the world. However, this should not stop them from continuing to transform to become more nimble and agile amid challenges ahead, says global management consulting firm McKinsey & Co. Its senior partner Guillaume de Gantès notes that banks in the region entered the crisis on a better footing than their peers. “Along with those in other emerging markets, they experienced substantially higher growth, their return on equity (ROE) on average was at least five points higher than those in mature markets (about 15% versus 9%), higher than the cost of capital. However, their ROE trend was negative, as opposed to the rest of the world, which was positive,” Jakarta-based De Gantès, who leads the firm’s financial services practice in Southeast Asia, tells The Edge. De Gantès predicts that banks in the larger Asia-Pacific, excluding China, are likely to face strong ROE erosion (estimated at about 860 basis points) between 2019 and 2021 as the first wave of Covid-19 impacts start to hit the banking system. “Our models suggest that 2021 ROEs will be negative for the region,” he says.

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