Merger and acquisition activity in Asia-Pacific's banking sector is likely to remain subdued in 2023 as a tough environment, valuation gaps and uncertainties around interest rates may deter prospective buyers.
The banking M&A count fell to 51 in 2022 from 56 in the previous year, dragged by lower deal volumes in Greater China and South Korea, according to data compiled by S&P Global Market Intelligence. Transactions included whole-bank deals, asset sales and minority investments. The decline in deal activity in Asia-Pacific was broadly in line with trends seen in other regions, as global banking sector M&A deals fell 19.6% year over year in 2022.
M&A dealmakers in the region's banking sector "may stay vigilant in 2023 due to a difficult financing environment and uncertainties over interest rates," said Stephen Chan, partner at Dechert LLP Hong Kong. Chan, however, expects a more notable increase in M&A activities in technology, media and communications, consumer and manufacturing due to digitalization and an increase in demand for goods as countries reopen their borders.
Deal activity slowed in 2022 as interest rates rose and geopolitical concerns increased, while valuations and confidence in the economic outlook fell, according to Market Intelligence's latest M&A and equity offerings market report. As a result, the total value of global announced M&A fell 35.8% year over year to $2.983 trillion, while the total value of global equity issuance plunged 66.6% to $351.76 billion. The impact of unfavorable market conditions was felt everywhere as the aggregate value of venture capital-backed funding rounds worldwide dropped 66.7% year over year in December 2022 to $19.71 billion.
In Greater China, the deal count in the banking sector decreased to 14 from 23 in 2021, according to Market Intelligence data. While China has eased COVID-19 restrictions, a key contributor to lower deal volumes in 2022, Chan expects M&A in the banking sector in Greater China to stay slow in 2023.
On the other hand, South Asia, particularly India, and Southeast Asia remained bright spots for M&A activity in the banking sector after attracting 20 and 14 deals in 2022, respectively, compared to eight and 11 in 2021.
"With China beginning its recovery from the pandemic in the early part of 2023, India may be able to attract foreign investors who previously would have chosen China instead," the Dechert LLP Hong Kong partner said.
Largest deals
In Asia-Pacific, the planned sale of Citigroup Inc.'s India consumer business to Axis Bank Ltd. was the largest deal in the banking sector in 2022, with a deal value of about $1.6 billion. This was the eighth sale in the region and was part of a strategic refresh Citi announced in 2021.
The transaction comprises the sale of Citibank India's consumer banking businesses, which include credit cards, retail banking, wealth management and consumer loans, as well as the sale of the consumer business of Citi's nonbanking financial company, Citicorp Finance (India) Ltd.
Commonwealth Bank of Australia's sale of a 10% stake in China's Bank of Hangzhou Co. Ltd., KT Corp.'s purchase of a 2.08% stake in Shinhan Financial Group Co. Ltd. and Kasikornbank PCL's acquisition of an additional 27.5% stake in PT Bank Maspion Indonesia Tbk were included in the 10 largest deals in Asia-Pacific's banking sector.
