PROFITABILITY OF BANKING IN ASEAN : A COMPARATIVE STUDY

Abstract

It is generally recognised that banking is a profitable business. Over the past decade, many banks all over the world have made high profits, expanded and later internationised. However, some banks seem to perform better than others although they are subjected to the same three conflicting objectives of liquidity, profitability, and security. Assessing the profitability of banks and comparing it on a country by country basis can be a risky exercise. The concept of what constitutes profits varies from nation to nation. So do the accounting standards and procedures in profits and loss calculations. In addition, many banks are still reluctant to publish full information on their earnings and revenue. Exchange rates variations also make the full assessment of profitability difficult, especially in cases of institutions with large portfolios of loans in different currencies. Nevertheless, profits remain as a reliable indicator of a bank performance. Thus, this Academic Exercise seeks to examine the various possible reasons behind the differences in performance (with respect to profitability) of the commercial banks in the ASEAN region. A comparative profitability study is done not only for the major groups of commercial banks within each country (Chapters 2-6), but also for the banks among the 5 members of the Association (Chapter 7). The two yardsticks appropriate for the analysis are the net earnings to net worth ratio and net earning to assets ratio. Based on these profitability measures calculated from available data, several contributing factors are discussed. They include government policies, reserves requirements, banks' efficiency, mergers, competition, economic growth, interest rates structure, problem loans, and others. Relevant suggestions to improve present return rates are made whenever and wherever possible.