Bank of America’s ASEAN macro-economic outlook groups the region’s economies by their sensitivity to external demand, with implications for loan demand, deposit growth and fee income across different markets. Singapore and Vietnam, where domestic demand accounts for 37% and 49% of GDP respectively, are highly exposed to global trade cycles. Indonesia and the Philippines, where domestic demand drives at least 80% of GDP, are more insulated from external swings. Kai Wei Ang, ASEAN economist at Bank of America, said the firm had expected Singapore and Vietnam to face an export correction following tariff-related front-loading to the United States. Instead, export growth accelerated across ASEAN in the second half of 2025, prompting upward GDP revisions for Singapore, Vietnam and Malaysia. For banks, stronger export activity supports trade finance utilisation, working capital lending, transaction banking fee flows and deposit growth, reinforcing liquidity and balance sheet expansion. According to Ang and his colleague Rahul Bajoria, ASEAN and India economist at Bank of America, differences in output gaps, external demand exposure and policy transmission are creating differentiated banking conditions across the region’s banking markets. AI investment sustains export momentum Artificial intelligence-linked capital expenditure by global technology firms has generated sustained demand for semiconductors, electronics and data centre components across ASEAN supply chains, sustaining export growth and loan demand from manufacturers, suppliers and logistics firms. Singapore’s re-exports to the United States rose well above 2024 monthly averages by the third quarter, while Vietnam and Malaysia recorded similarly elevated export indices. Bank of America’s global technology team estimates annual artificial intelligence capital expenditure could approach $1.2 trillion by 2030. However, rising exposure to technology sectors also increases concentration risk, making monitoring of leverage, order pipelines and sector exposure more critical to credit risk management. Output gaps drive regional divergence Beyond the export story, Bank of America economists said output gaps — growth relative to economic potential — are the primary determinant of banking conditions. Singapore’s 2025 GDP forecast of approximately 4.8% against a long-run potential of 2 to 3% represents meaningful outperformance, with Bank of America economists expecting a positive output gap to be sustained through 2026. Malaysia enters the year from a similar position. Vietnam, with an 8.0% 2025 forecast GDP outcome and a 2026 forecast of 7.5%, benefits from strong export momentum. Indonesia, the Philippines and Thailand, by contrast, are growing below capacity. Bank of America forecasts Indonesia’s output gap will not close until early 2027, with the Philippines’ gap remaining negative through 2027. Thailand’s GDP growth, at 2.0% in 2025 against potential of around 2.7%, reflects the withdrawal of its planned Digital Wallet stimulus. For banks, positive output gaps typically coincide with stronger corporate earnings, firmer household income growth and more resilient asset quality. In below-capacity economies, softer domestic demand weighs on SME borrowing appetite and household credit expansion, while asset quality remains more sensitive to income volatility. Bank of America economists noted weak credit flow in these markets despite policy easing, indicating underwriting cannot rely on headline growth alone. Loan growth in Indonesia, the Philippines and Thailand are therefore more dependent on domestic confidence and income recovery than on headline GDP prints. Bajoria said ASEAN’s deeper integration into China and regional supply chains provides a stabilising foundation for growth, although banking conditions will increasingly diverge according to domestic cycle positioning. Weak transmission limits impact of rate cuts The divergence in output gap positions feeds directly into monetary policy expectations. Bank of America expects further easing in Indonesia, the Philippines and Thailand in the first half of 2026, while Malaysia is likely to remain on hold at 2.75% and Singapore’s exchange rate settings are expected to normalise gradually. Bank of America economists said weak policy transmission — particularly the limited pass-through of policy rate cuts into lending rates — is now a more operationally relevant driver of credit conditions than headline policy easing. In Indonesia, commercial bank lending rates have fallen by roughly 50 basis points since September 2024, compared with a 150-basis-point reduction in the policy rate, while loan growth has remained below Bank Indonesia’s 8–11% target range, particularly among micro, small and medium enterprises. Thailand shows a similar pattern, with lending rates down around 80 basis points against a 125-basis-point policy cut and overall loan growth still contracting. For banks, this transmission gap has direct balance sheet implications. Net interest margins may not compress in line with headline rate cuts if lending rates adjust more slowly, but credit volumes cannot be projected based on policy easing alone. Funding costs, deposit competition and borrower risk appetite will ultimately determine loan growth more than the policy rate path itself. On inflation, Ang said inflation was reasonable, with food price pressures moderating. For banks, the key implication is that contained inflation gives central banks room to adjust policy without triggering abrupt shifts in deposit pricing or wholesale funding costs. Bank of America economists also noted that regional bond markets are more sensitive to United States Treasury movements than to domestic fiscal developments. For bank balance sheets, this reinforces that external rate dynamics, particularly United States yields and dollar liquidity, remain the primary driver of funding costs across ASEAN. Banks must calibrate credit and funding by market Bank of America’s analysis suggests ASEAN banks cannot rely on a single regional pricing, funding or credit approach, as credit growth, margins and asset quality are increasingly shaped by domestic cycle positioning. In Singapore, Vietnam and Malaysia, stronger artificial intelligence-linked export momentum supports trade finance demand, credit growth and fee income, albeit with higher exposure to technology sectors. In Indonesia, the Philippines and Thailand, negative output gaps and weak monetary transmission are constraining loan growth despite policy easing, making credit expansion more dependent on domestic demand recovery and borrower confidence. As these forces play out differently by market, banks are likely to experience varying margin dynamics, credit growth trajectories and asset quality risks across countries, pointing to the need for pricing, underwriting and funding strategies that are calibrated at the individual market level rather than applied uniformly across ASEAN.
