Asia Banking Research

It’s earnings season and Southeast Asia’s platform companies are trying once again to convince investors that they are on the path to profitability. The jury is still out as far as we’re concerned, especially in the case of any company that started out in the business of ride hailing and until recently emphasized growth at all costs. Having lost 75% of its market valuation since going public a little over a year ago, SoftBank and GIC-backed GoTo has yet to convince investors that it has turned a corner on the path to profitability, and we see little in its second-quarter earnings results that suggest anything has fundamentally changed for the better.

Investors are bullish on the potential of Singapore-based digital wealth management platform Endowus. Though the company’s current revenue is modest, and profitability remains very much in the future, Endowus still managed to recently raise US$35 million from some huge banks and four Asian billionaire families.

Sea Group’s stock took a pummeling on Tuesday, falling almost 29% to US$40.58 as investors reacted to a second quarter earnings report in which the company missed revenue forecasts though made a profit of US$331 million. In a nutshell, Sea’s triumvirate of digital services that once looked unassailable now seems a bit shaky as consumer spending in many of its key markets is not robust. We think the fintech business still has plenty of potential, and probably the same holds true for e-commerce, but the erstwhile profitable gaming arm has become a laggard.

Who says digital banks cannot make money? We often do – because it tends to be true. But Kakao Bank is a notable exception to the rule, and all the more unusual because its success has come in one Asia’s best-banked countries. Kakao Bank is one of the few digital lenders that has reached profitability and stayed there, as it showed with its solid second-quarter earnings.

Singaporean sovereign wealth fund GIC's annualized 20-year real rate of return - its main performance gauge - for the year ended March 2023 was 4.6% after accounting for inflation, the highest since 2015 and up from 4.2% a year earlier. GIC has a diversified portfolio of which certain Chinese investments are a big part, including Alibaba and Ant Group. The diversity of the portfolio likely helped GIC insulate its performance from the 2022 market correction.

Philippine President Ferdinand Marcos on July 18 signed a bill creating the Philippines’ first sovereign wealth fund, a move aimed at accelerating infrastructure and economic growth in one of the largest countries in Southeast Asia. The Philippines follows Singapore – whose two sovereign wealth funds are both success stories – as well as Indonesia (so far, so good) and Malaysia (failure) with observers divided over whether Marcos’ Maharlika Investment fund will deliver on its promises or be less successful.

It isn’t the most obvious recipe for success: digital banking and groceries. But it seems the Standard Chartered-FairPrice Group offshoot Trust Bank is doing something right. By late May, just eight months after its launch, the Singaporean digibank had accrued US$739.5 million in deposits and was – by its own estimates – on track to break even in 2025.

With the surge in popularity of environmental, social and governance (ESG) investing, it has become more important than ever to ensure that related companies and projects are as “green” as they purport to be. PwC estimates that ESG-related assets under management (AuM) will reach US$33.9 trillion by 2026, from US$18.4 trillion in 2021. With a 12.9% annual growth rate, ESG assets are on track to make up 21.5% of global AuM by 2026.

Naver’s Line has been keen to leverage the strength of its messaging app and e-wallet in select markets to expand into digibanking. Yet Line Bank Japan, which was supposed to be a tie-up between Line and Mizuho Bank, quietly folded in March, 4.5 years after the venture’s first preparatory company was established. Chalk up its failure to regulatory woes. However, Line has set up three other digibanks in the Asia-Pacific region that rely on a similar strategy of teaming up with incumbents.

While it may not be a sure thing, the Kakao Bank-SCBX tie-up looks promising. Following the Bank of Thailand’s (BOT) announcement earlier this year that it would allow digital banks by 2025 – no rush, it seems – some of the biggest financial groups in the kingdom have expressed their interest in setting up a digital lender. It just so happens that Thailand’s decision to greenlight digibanks comes as South Korea’s Kakao Bank is preparing for international expansion.

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