Banking sector M&A in Asia-Pacific may pick up in the second half as dealmaking in major economies such as China and India recovers from a lackluster performance in the January-to-March quarter.

The reopening of China's economy after the last of the pandemic-related restrictions were lifted in early 2023 may bolster deal numbers. The finance sector deal count in mainland China and Hong Kong dropped to 138 in 2022 from 190 in 2021, according to S&P Global Market Intelligence data.

"Following the opening up of COVID restrictions, China has picked up in terms of M&A activities," said Thomas Tang, partner, deal advisory at KPMG China. "India is also a fast growing country for M&A benefiting from domestic demand, as well as favorable government policies."

Asia-Pacific reported 13 banking sector M&A deals in the first quarter, compared with 15 in prior-year period, according to Market Intelligence data. Transactions included whole-bank deals, asset sales and minority investments. The banking M&A count was at 18 in the October-to-December quarter.

The first quarter is traditionally a slow quarter for dealmaking as activity picks up after people return from holidays and companies finalize their annual budgets and plans. M&A deals fell in three out of the last five years in Asia-Pacific during the first quarter, compared with the fourth quarter of the prior year, Market Intelligence data shows.

The first quarter was slow for M&A across the globe in 2023. Banking sector deals in North America fell sharply to 35 in the quarter from 93 in the prior-year quarter, while the number in Europe fell to 17 from 39 over the same period amid the banking turmoil there, according to Market Intelligence data.

Asia-Pacific faces challenges in dealmaking as buyers and sellers disagree on valuation and credit financing remains expensive, said Miranda Zhao, head of mergers and acquisitions for Asia Pacific at Natixis Corporate & Investment Banking. M&A activity, however, may pick up slightly in the second half after the market settles with the new macroeconomic outlook, Zhao added.

Robinsons Retail Holdings Inc.'s purchase of a minority stake in Bank of the Philippine Islands was the largest deal in Asia-Pacific's banking sector in the first quarter, with a deal value of $358.24 million. The Bank of Yokohama Ltd.'s planned acquisition of The Kanagawa Bank Ltd.., with a deal value of $64.11 million, was a distant second, followed by Industrial and Commercial Bank of China Ltd.'s minority stake sale worth $7.32 million, the data shows.

Zhao expects companies in the region with strong balance sheets and liquidity to scout for new growth opportunities globally to further diversify their businesses.

As lenders look for partnerships, economies traditionally not known as major tech hubs may see increased activity in the digitization space as financial technology companies are penetrating the market through multiple channels and expanding across countries.

"While traditional hubs such as Hong Kong and Singapore continue to be the focus, other markets such as South Korea and Malaysia are expected to pick up in terms of fintech transactions," KPMG's Tang said.