DBS’s market capitalisation stood at US$63.4 billion on Monday while BCA finished at US$68.6 billion, according to data from Refinitiv. The figures hover around MUFG’s market cap of US$63.7 billion.

It was only six months ago that DBS and BCA lagged behind MUFG by more than US$10 billion. But the strong earnings among Southeast Asian banks – along with effects of the weak yen on MUFG’s dollar-converted market cap – quickly closed the gap.

DBS’s third-quarter net profit jumped 32% on the year to a new quarterly record of SG$2.23 billion (US$1.59 billion), the bank said Thursday. Contributing to this result was the bank’s net interest margin (NIM) widening 0.32 percentage point from the second quarter to 1.9%.

“If the US Fed funds rate peaks at 4.75% … our NIM would plateau at 2.20-2.25%” by the middle of next year, said DBS CEO Piyush Gupta.

At BCA, net profit gained 25% in the third quarter. The balance of outstanding loans rose 13% in that period from a year earlier, and the profit margin remained above 5%.

Economic growth and rising income levels have fueled the influx of funds from institutional and retail investors from within the region and without. During the three quarters through September, DBS took in SG$15 billion in new funds, double the amount from a year earlier.

So-called family offices that manage assets for the affluent have cropped up in Singapore, so DBS is expected to enjoy a strong stream of fees earned from managing assets and card transactions through business with those entities.

In contrast, Japan’s biggest banks have no hope of seeing margins in domestic operations improve under the Bank of Japan’s ultraloose monetary policy. DBS’s return on equity was 16.3% in the third quarter, while MUFG’s ROE was just 2.9% in the most recently reported April-June quarter.

MUFG’s return on equity target for the full 2023 fiscal year remains modest at 7.5%, demonstrating the stark difference in earning potential compared to DBS.

The five biggest economies in the Association of Southeast Asian Nations will grow by roughly 5% per year over the next five years, according to forecasts by the International Monetary Fund. Southeast Asian banks enjoy an advantageous business environment due to the growth potential of their respective markets.

In the latest Global Financial Centers Index, published by British think tank Z/Yen in September, Singapore and Hong Kong took third and fourth place respectively. Tokyo meanwhile slipped to 16th place.

Japanese banks have shifted resources to Southeast Asia to capitalise on that market. MUFG’s Indonesian subsidiary Bank Danamon now posts margins of approximately 8%, which is higher than margins in Japan.