What Drives the Valuation Premium of ASEAN Banks?

English

Abstract

This study examines whether operating profitability, financial leverage, debt-service capacity, cash-flow quality, and balance-sheet liquidity explain within-bank variation in the market valuation of listed banks in Southeast Asia. Using a longitudinal panel of 116 banks from Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam observed over the fiscal years 2016 through 2025, the analysis relates the price-to-book value ratio (PBV) to one-period-lagged operating margin, assets-to-equity, interest coverage, cash-flow margin, and cash-to-deposits, while controlling for bank size. The preferred specification combines bank and period fixed effects with standard errors clustered at the bank level and is estimated on 940 lag-matched observations from 115 banks; robustness checks address regressor timing, non-linear liquidity, balanced-panel composition, and multicollinearity. Descriptive and bivariate evidence reproduces the familiar negative association between reported fundamentals and PBV. However, none of the five hypothesized channels is statistically significant at the 5% level once time-invariant bank heterogeneity and common period shocks are absorbed, and explanatory power remains modest, with a within R² of approximately 6%. Country-specific estimates point to potential heterogeneity, with leverage positively associated with valuation in Malaysia and the Philippines and interest coverage negatively associated in Vietnam. At the same time, variance inflation factors of 14.0 and 13.6 indicate that operating margin and cash-flow margin are nearly indistinguishable. The findings suggest that valuation premiums among ASEAN banks are driven mainly by persistent structural and institutional differences rather than by short-run movements in reported ratios, cautioning managers and investors against expecting single-ratio improvements to translate into higher multiples.