ASEAN member countries have made slow and uneven progress towards regional banking-sector integration, says Fitch Ratings.

It said further moves were likely to remain gradual and full regional financial integration looked like a very distant goal, it said in a statement today.

The rating agency said lower restrictions on cross-border bank ownership would provide some undercapitalised banking systems with a wider pool of investors and could support policymakers' efforts at sector consolidation in some countries.

"We also expect increased cross-border ownership to support access to the latest risk-management systems and financial technology (fintech) and drive governance improvements in the long-term," it added.

Meanwhile, Fitch also said ASEAN's stronger banks would gain opportunities for expansion.

ASEAN banking integration framework (ABIF), endorsed in December 2014, envisioned qualified ASEAN banks being eventually allowed to operate freely in the region.

"However, the ABIF recognises that some banking systems are more ready to open up than others and that greater integration could allow financial risks to spill across borders if the right regulatory institutions are not in place," it said.

ABIF's timeline sets out that the ASEAN-5 (Indonesia, Malaysia, the Philippines, Singapore and Thailand) should each have at least one bilateral ABIF agreement in place by next year to allow selected banks access to each other's market.

All ASEAN countries should have one deal near completion by 2020.

Fitch said while bilateral deals have been slow to get off the ground, Malaysia and Indonesia have signed an ABIF agreement.

"Other are being negotiated, but the bigger moves toward regional financial liberalisation could well be happening outside of the ABIF framework," Fitch said, adding that Vietnam was most likely to open up its banking sector further in the near-term.

Vietnam prime minister recently suggested that the ceiling on foreign ownership of banks be raised this year as it was currently capped at 30 per cent.

Fitch said pressure to allow greater foreign investment stems from recapitalisation needs but Vietnamese banks' capital buffers were thin and would come under more pressure over the next two years as Basel II was phased in.

"However, it is very unlikely that limits will be raised sufficiently to allow foreign control of large state-owned banks.

"This will continue to act as a deterrent to some investors. It will also limit potential improvements in bank governance," it added.

Fitch said further moves toward financial liberalisation in ASEAN would depend on the pressures facing each system.

"Meanwhile, ASEAN's policy of non-interference and lack of strong central authority, as well as, caution over the potential risks attached to rapid financial liberalisation, are likely to result in slow progress on the ABIF," it added.

-- BERNAMA